COMM. OF INCOME TAX vs. M/S GAGNEJA TRADERS

The instant appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against order dated 27.5.1999 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”), in ITA No. 834(ASR)/1991, for the assessment year 1988-89 proposing to raise the following substantial question of law:- “Whether, on the facts and the circumstances of the case, the Ld. Tribunal was right in law in setting aside the order of the CIT (A) sustaining the penalty of Rs.30,245/- imposed u/s 271 (1)(c) of the Income Tax Act, 1961 by the A.O., holding that surrendering of the amount did not make it a case of concealed income as also that it was at least not a fit case -2- wherein the lower authorities should have imposed the penalty upon the assessee on the allegation of concealed income?”

Put succinctly, the facts of the case are that the assessee was a partnership concern comprising Sh. Joginder Pal and Smt. Sheela Devi as partners having 50% share each. It derived income from purchase and sale of Gur and Sugar etc. The assessee followed the financial year as its previous year relevant to the assessment year 1988-89 and filed return on 29.7.1988 declaring an income of Rs.38,584/-. On an intimation received from the Investigation Wing of the Department vide letter letter 24.7.1989 that the assessee purchased a demand draft for Rs.70,230/- on 14.3.1988 from the State Bank of India, Imam Nasar, Jalandhar, found that the said draft was not accounted by the assessee in its books of account. The proceedings under Section 147 of the Act were initiated against the assessee and notice was served on 28.8.1989. The books of account of the assessee was signed on 19.7.1989 by the Inspector of the Investigation Wing. The assessee filed a revised return on 21.7.1989 surrendering the said amount of Rs.70,320/- by declaring an income of Rs.1,08,904/- of which no notice was taken by the Assessing Officer as the original return had already been processed under Section 143 (1) by then. However, in response to notice under Section 148 of the Act, return was filed on 15.2.1990 again surrendering the amount of Rs.70,320/- declaring total income of Rs.1,08,904/-. The Assessing Officer assessed the total income of the assessee at Rs.1,14,404/- including an addition of Rs.70,320/- on account of unexplained investment. The -3- Assessing Officer imposed a penalty of Rs.30,245/- being 100% of the tax on the concealed income of Rs.70,320/- vide order dated 28/29.8.1990. Against the said penalty, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT (A)] who dismissed the appeal. Still feeling dissatisfied, the assessee filed an appeal before the Tribunal who deleted the penalty of Rs.30,245/- imposed by the Assessing Officer and upheld by the CIT (A). Hence, the present appeal by the revenue.

We have heard learned counsel for the parties.

The solitary issue that arises for consideration in this case is - whether the penalty amounting to Rs.30,245/- on account of concealment of income of Rs.70,230/- which arose from purchase of a demand draft on 14.3.1988 from State Bank of India, Imam Nagar, Jalandhar not accounted for in the books of account was justified.

The Assessing Officer while imposing penalty under Section 271(1)(c) of the Act had concluded that the draft for Rs.70,320/- was unaccounted money of the assessee as it was not depicted in the books of account.

On appeal by the assessee, the Commissioner of Income Tax (Appeals) [in short “the CIT (A)] upheld the order of the Assessing Officer and had recorded as under:- “The revised return filed by the assessee on 21.7.89 vide receipt No. 505 showing an income of Rs.1,08,904/- is not a voluntarily return as claimed by the assessee. The department had in its possession information regarding purchase of demand draft for -4- Rs.70,320/- purchased by the assessee on 14.03.88 prior to the date of filing of the revised return by the assessee. The Inspector of the Department had signed the cash book of the assessee on 19.7.89 and it was established on 19.7.89 by the Department that the purchase of demand draft for Rs.70,320/- was not accounted for in the books of account for the assessment year 1988-89. Therefore the revised return filed on 21.7.89 is not voluntarily return. The revised returned filed after the completion of assessment is invalid return. In the case of assessee the assessment for the asstt. year 1988-89 was completed on 28.12.88 u/s 143 (1) and hence the revised return filed by the assessee was invalid. Under the circumstances the only legal course open to the Department was to issue notice u/s 148 and the department had in his possession material facts to show the assessee had escaped income for the asstt. year 1988-89. Filing of a revised return in response to notice u/s 148 for the 2nd time on 15.2.90 does not make a voluntarily return. During the course of asstt. proceedings the assessee was especially asked about the source of money that was used for the purchase of demand draft of Rs.70,320/-. The assessee conceded that it was not in the books of a/c and, therefore, it may be -5- treated as income from undisclosed sources. It is clear that the assessee furnished inaccurate particulars of income and failed to furnish all material facts relating to the income for the assessment year 1988-89. The revised return was filed by the assessee not voluntarily return but only after establishment of concealment by the Department.”

However, feeling dissatisfied with the aforesaid orders, the assessee carried the matter in appeal to the Tribunal. The Tribunal deleted the penalty with the observation that the assessee had produced a photo copy of the cash book wherein an entry was made in the cash book on 16.3.1988 regarding the aforesaid draft dated 14.3.1988 and, therefore, there was no concealment. Against the order of the Tribunal deleting penalty, the revenue has approached this Court.

Learned counsel for the revenue submitted that the Tribunal was in error in deleting the penalty as the finding recorded by the Tribunal was not borne out from the record and from the facts and circumstances of the case. Learned counsel submitted that the acceptance of the plea that entry was made in the cash book on 16.3.1988, i.e. after two days of the purchase of the draft is against the record as in case the assessee had shown in the books of account, there was no occasion for the assessee to surrender the same on 21.7.1989 and again on 15.2.1990 and pay the tax. It was also argued that no additional evidence in terms of Rule 46A of the Income Tax Rules, 1962 (in short “1962 Rules”) had been claimed before the CIT -6- (A) or under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 (hereinafter referred to as “1963 Rules”) before the Tribunal and, therefore, no reliance could be placed on photo copy of cash book produced before the Tribunal. He drew the attention of this Court to order of the Assessing Officer wherein it was recorded by the Assessing Officer that the assessee on being asked for the source of money had specifically conceded that it was not entered in the books of account and it may be treated as income from undisclosed sources. He, thus, submitted that the finding of the Tribunal being erroneous, the substantial question of law as claimed arises in this appeal.

On the other hand, learned counsel for the assessee submitted that the finding of fact has been recorded that there was no concealment inasmuch as the books of account of the assessee depicted the entry in the cash book on 16.3.1988, a photo copy of which had been produced before the Tribunal and this could not be challenged now by the revenue as no separate question has been claimed. According to the learned counsel, no substantial question of law arises in this appeal. He relied upon a judgment in CIT v. Suraj Bhan [2006] 294 ITR 481 in support of his submission.

We have given our thoughtful consideration to the respective submissions made by learned counsel for the parties. The Tribunal while deleting the penalty has relied upon an entry in the cash book on 16.3.1988, a photo copy of which was shown to the Tribunal at the time of hearing. However, we are of the opinion that the finding is not based on record and cannot withstand judicial scrutiny for reasons hereinafter enumerated.

The assessee himself had accepted before the Assessing Officer in the assessment proceedings that there was no entry made in the cash book and that the same may be treated as its undisclosed income. It was further corroborated from the fact that the assessee while filing the revised return on 21.7.1989 i.e. after a period of one year and four months from the date of purchase of demand draft and again in return filed on 15.2.1990 in response to notice under Section 148 of the Act had disclosed this as its unexplained investment in the purchase of the draft. The cash book which was signed by Inspector Harbhajan Singh on 19.7.1989 did not find the entry dated 16.3.1988 therein. Moreover, the assessee never claimed that additional evidence under the 1962 Rules or 1963 Rules should be allowed before the CIT (A) or the Tribunal on the basis of which it could have shown that there was an entry with regard to the demand draft on 16.3.1988 as claimed by the assessee. It is, thus, concluded that the draft for Rs.70,320/- prepared on 14.3.1988 was from the concealed income of the assessee and penalty under Section 271(1)(c) was rightly imposed by the Assessing Officer and upheld by the CIT (A).

The substantial question of law claimed by the revenue is comprehensive which includes regarding the sustainability of penalty under Section 271(1)(c) of the Act and necessarily includes challenge to the aforesaid finding as well. No separate question was required to be claimed to challenge veracity of alleged entry dated 16.3.1988. 13. Now adverting to the judgment relied upon by learned counsel for the assessee in Suraj Bhan's case (supra), this Court on the individual fact situation of the case had come to the conclusion that -8- the findings recorded by the Tribunal were based on record and there was no perversity in the findings. The said judgment does not help the case of the assessee.

Accordingly, the finding recorded by the Tribunal deleting the penalty cannot be sustained. The question of law proposed above is answered in favour of the revenue and against the assessee.

The appeal is allowed and the order of the Tribunal is set aside. (AJAY KUMAR MITTAL) JUDGE August 18, 2010 (ADARSH KUMAR GOEL) gbs JUDGE