1. This is an application under Section 256(2) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), by the Commissioner of Income-tax, Haryana and Chandigarh, Rohtak, for a direction to the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, to state the case and refer the questions of law framed by him to this court for its opinion. It has been filed in the following circumstances :
2. The assessee, Messrs Chandan Lal Niamat Singh, Rohtak, is a registered firm of commission agents doing business in sale and purchase of food-grains and sugar. During the 'previous year' relating to the assessment year 1968-69, the assessee through the aegis of Messrs Ram Lal Chandan Lal, Muzaffarnagar (Uttar Pradesh), agreed to purchase 75 bags of sugar from Messers S. S. Sugar and General Mills Limited, Muzaffarnagar. The assessee had to pay Rs. 28,575 to the said Mills and Rs. 11,050 to Messrs Ram Lal Chandan Lal, Muzaffarnagar. The delivery of sugar had to be taken on December 5, 1967. In pursuance of this contract, Rs. 28,575 was deposited in the Punjab National Bank, Muzaffarnagar Branch, on December 4, 1967, for purchasing a draft in favour of Messrs S. S. Sugarand General Mills Limited. This amount was deposited through Shri Ved Parkash as per voucher No. 75 dated December 4, 1967. The assessee also paid Rs. 8,550 to Messrs. Ram Lal Chandan Lal on that day. A further sum of Rs. 2,500 was paid on behalf of the assessee to this firm on December 5, 1967. Rs. 417 were spent on travelling expenses and carriage charges of the sugar.
3. During the assessment proceedings for this year, the assessee pleaded before the ITO that it had a cash balance of Rs. 9,042 on the morning of December 4, 1967. It had received a sum of Rs. 15,000 from Messrs. Dhanna Mal Ram Sarup, Rohtak, and another sum of Rs. 16,900 from Messrs. Giga Ram Kapur Chand, Rohtak, before 8 a.m. on that day. These amounts represented the sale proceeds of the sugar sold by the assessee earlier to these firms. After collecting these amounts, Shri Raghbir Singh, a partner of the firm, went to Muzaffarnagar, and reached there well before 2 p.m. on that very day and made the above mentioned payments. The ITO did not accept this plea of the assessee and came to the conclusion that the amount of Rs. 40,042 was paid out of income from undisclosed sources. He added this amount to the returned income of the assessee and framed assessment on that basis.
4. The assessee went up in appeal. The AAC gave the appellant benefit of the opening cash balance and reduced the addition to the returned income from Rs. 40,042 to Rs. 31,000. He also gave relief in respect of certain other additions which are not relevant for our purposes. On appeal, the Income-tax Appellate Tribunal confirmed the addition of Rs. 31,000 to the returned income of the assessee.
5. Penalty proceedings were initiated against the assessee. The assessee reiterated its claim regarding the receipt of two amounts of Rs. 15,000 and Rs. 16,900 from Messrs. Dhanna Mal Ram Sarup, Rohtak, and Messrs, Giga Ram Kapur Chand, Rohtak, respectively. The IAC did not accept the plea of the assessee and levied penalty of Rs. 35,000. Aggrieved by this order, the assessee filed an appeal. The Appellate Tribunal allowed the appeal and cancelled the penalty, holding that the assessee had been able to discharge the onus placed on it by the Explanation to Section 271(1)(c) of the Act, that the failure of the assessee to return the correct income was not on account of fraud or gross or wilful neglect on its part.
6. The Commissioner of Income-tax filed an application under Section 256(1) of the Act before the Appellate Tribunal, requesting it to draw up a statement of the case and refer the following questions of law to this court for its opinion :
'(i) Whether, on the facts and in the circumstances of the case, the finding of the Appellate Tribunal that the assessee had discharged theonus lying on it under the Explanation to Section 271(1)(c) is based on any legal or admissible material and is not vitiated by admission of hypothetical considerations, surmises and conjectures contradicted by the assessee's own version and evidence on the record ?
(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has misdirected itself in law in holding that penalty under Section 271(1)(c) of the Income-tax Act, 1961, was not exigible ?'
7. The Appellate, Tribunal, vide its order dated July 31, 1976, declined to refer the questions framed by the Commissioner of Income-tax, on the ground that the questions whether, on the facts and in the circumstances of the case, the penalty was exigible and whether a statutory presumption, like the one raised by Explanation to Section 271(1)(c) of the Act, has been rebutted or not, are essentially of fact. They were of the view that no question of law arose in this case.
8. The Commissioner of Income-tax has filed the present application. In order to determine whether the conclusion of the Tribunal that the assessee had rebutted the statutory presumption raised by the Explanation to Section 271(1)(c) of the Act is based on any evidence or not, it will be appropriate to extract the relevant part of its order :
'In our opinion, the onus that lies on the assessee should be considered to have been discharged, firstly, because it was Shri Ved Parkash who made the payment of Rs. 28,575 on behalf of the assessee to the Punjab National Bank on December 4, 1967. Shri Ved Parkash was interested in seeing that a draft was purchased because by getting the transaction in respect of 75 bags of sugar completed, his firm was to be benefited by Rs. 8,550. The fact that Shri Raghbir Singh, partner, reached Muzaffarnagar on December 4, 1967, is not in doubt but the what is in doubt is that he could not reach Muzaffarnagar before the closing hours of the bank, i.e., 2.00 p.m. on December 4, 1967. There is a probability that Shri Ved Parkash might have made the payment on behalf of the assessee and might have recovered the same amount from Shri Raghbir Singh when he reached Muzaffarnagar on the same date. The second possibility is that Shri Raghbir Singh himself reached Muzaffarnagar with the required money and made the payment to the bank. Though in the assessment proceedings, the possibility of Shri Raghbir Singh having received Rs. 15,000 from M/s. Dhanna Mal Ram Sarup and Rs. 16,900 from M/s. Giga Ram Kapur Chand has not been accepted, merely because the assessee's explanation in the assessment proceedings has not been accepted, it does not necessarily mean that the explanation in respect of the penalty proceedings should also be rejected. It has not been disputed that the firm of the assessee and M/s. Giga Ram Kapur Chand are adjacent to each other.
Shri Shiv Narain, partner of M/s. Giga Ram Kapur Chand, has in an affidavit dated July 1, 1972 (page 9 of the paper book), admitted that his firm had a cash balance of Rs. 32,166.11 out of which Rs. 16,900 was paid to the assessee through Shri Rangi Lal, partner. Out of this amount, Rs. 7,900 has been credited on December 4, 1967, itself and Rs. 9,000 has been credited on the next date. When the books of a third party, i.e., M/s. Giga Ram Kapur Chand, confirmed that Rs. 16,900 was paid to the assessee on December 4, 1967, and when there is no evidence that the books of that party were not maintained in the normal course of the business, the evidence of Shiv Narain must be accepted that Rs. 16,900 was paid by them to the assessee on December 4, 1967. It cannot be inferred that M/s. Giga Rani Kapur Chand made a false entry in their books of account to show that Rs. 16,900 was paid to the assessee on that day. The second amount is Rs. 15,000 which was received by the assessee from M/s. Dhanna Mal Ram Sarup and the cash book of M/s. Dhanna Mal Ram Sarup clearly shows that Rs. 15,000 was paid to the assessee on December 4, 1967. An effort has been made to doubt that the aforesaid payment of Rs. 15,000 could be made only after M/s. Dhanna Mal Ram Sarup received Rs. 11,026.26 from M/s. Sita Ram Suresh Chand of Hissar. M/s. Dhanna Mal Ram Sarup had sold 21 bags of sugar to M/s. Sita Ram Suresh, Chand of Hissar on December 2, 1967, and an affidavit has been filed by Shri Kapur Chand of M/s. Sita Ram Suresh Chand of Hissar that Rs. 11,026.26 was paid to M/s. Dhanna Mal Ram Sarup through Shri Rangi Lal at Rohtak on December 4, 1967. The availability of funds with M/s. Dhanna Mal Ram Sarup cannot, therefore, be doubted. The assessee had sold sugar (37 bags on December 2, 1967) worth Rs. 17,760 and there is nothing improper in the assessee's receiving Rs. 15,000 from M/s. Dhanna Mal Ram Sarup on December 4, 1967. The main reasons for not having accepted these payments as having been received in the early business hours on December 4, 1967, is that somebody had to reach Muzaffarnagar for making the payment in the bank before 2.00 p.m. As stated earlier, there could be a possibility that Shri Ved Parkash could have made the payment and he having been reimbursed by Shri Raghbir Singh when he reached Muzaffarnagar. In such circumstances, the exact time of arrival of Shri Raghbir Singh at Muzaffarnagar is not the conclusive factor. With the receipt of Rs. 16,900 from M/s. Giga Ram Kapur Chand, Rs. 15,000 from M/s. Dhanna Mal Ram Sarup and with the amount available in cash, the assessee had adequate resources of about Rs. 40,000 which was to be paid at Muzaffarnagar. Considering the preponderance of probability, we hold that the onus that lies on the assessee had been discharged. There is, therefore, no reason to levy any penalty in this case.'
9. On the material available on record and more particularly the affidavits of Shri Shiv Narain, partner of Messrs. Giga Ram Kapur Chand, Rohtak, and Shri Kapur Chand of Messrs. Sita Ram Suresh Chand, Hissar, and the books of account of Messrs. Dhanna Mal Ram Sarup, Rohtak, and Messrs. Giga Ram Kapur Chand, Rohtak, the Appellate Tribunal recorded a finding of fact that on the morning of December 4, 1967, the assessee had about Rs. 40,000 in cash with it. It also concluded that since Messrs. Ram Lal Chandan Lal, Muzaffarnagar, were vitally interested in the completion of the bargain of the assessee with Messrs. S. S. Sugar and General Mills, Muzaffarnagar (they had to be paid Rs. 11,050 on account of this bargain), Ved Parkash, partner of this firm, must have deposited Rs. 28,575 in the bank at Muzaffarnagar and he must have realised this amount later on on that day from Shri Raghbir Singh, partner of the assessee-firm. The Appellate Tribunal has noted that this amount had been deposited through Shri Ved Parkash abovementioned, vide voucher No. 75 dated December 4, 1967. So on the basis of these primary facts, the Appellate Tribunal was fully justified in reaching its conclusions. There is a direct nexus between the facts available on the record and the conclusions arrived at by the Appellate Tribunal. The Appellate Tribunal has not taken into account any extraneous or irrelevant material in arriving at this conclusion. The findings of the Tribunal are essentially on questions of fact. The finding of the Appellate Tribunal that the case does not raise any question of law is fully justified. In our opinion, the case does not raise any question of law. The questions sought to be raised do not arise in this case. The application is dismissed, but with no orders as to costs.