1. These references from the Income-tax Appellate Tribunal concern the assessment of one Sowbhagmull Mahavirchand (hereinafter called the assessee') for the assessment year 1971-72, and also proceedings for penalty against him for the same assessment year.
2. The assessee was carrying on shroff business, that is to say, business in jewelry and money-lending at Villupuram. He was also a partner in some textile concerns in Madras. One Janardhanam, who described himself as a clerk of the assessee, was apprehended by the Central Excise authorities in March, 1971, at Thanjavur railway station, carrying 25 bars of gold with foreign markings. This Janardhanam gave a statement then to the effect that he was a clerk of assessee, that the assessee was indulging in business in contraband foreign gold and that the stock of 25 bars of gold which he was carrying belonged to the assessee. One Govindaraja Chettiar was said to be a person to whom the 25 bars of gold were meant to be delivered. This Govindaraja Chettiar also gave a statement to the Central Excise Department at the time of a raid conducted in his house. In his statement, Govindaraja Chettiar admitted that he had had some transactions with the assessee in gold. In the course of his statement, Govindaraja Chettiar referred to his having received from the assessee 25 bars of gold in February 1971. After obtaining the statements of Janardhanam and Govindaraja Chettiar, the Central Excise authorities examined the assessee. The assessee denied that he had any dealings in any contraband gold of foreign origin. Subsequently however, the assessee made a different statements admitting his involvement in the transaction relating to 25 bars of gold delivered to Govindaraja Chettiar in February 1971, when he was apprehended in Thanjavur railway station by the Central Excise authorities. While admitting that he was implicated in these transactions, the assessee, however, denied that he was implicated in these transactions, the assessee, however, denied that he was the owner of the bar of gold. He stated that some individuals from Madras had entrusted him with these bars of gold to be sold by him on commission. He, however, stated that he did not know the names and addresses of those who supplied him with those bars of gold.
3. These statements which were with the Central Excise authorities found their way, in course of time, to the I.T. Dept. Before the ITO the assessee was again examined. At this time, however, the assessee once again denied he was the owner of the gold bars. He also denied that he had transactions of purchase and sale of these articles. The ITO, on a consideration of the statements of Janardhanam and Govindaraja Chettiar as well as the statement made by the assessee before the Central Excise authorities, in which he had admitted his having been involved in these transactions, took the view that the value of the bars of gold in question must represent the assessee's concealed income from unexplained sources. According to the ITO the evidence showed that the assessee had delivered 25 bars of gold to Govindaraja Chettiar in February 1971, and again dealt with another consignment of 25 bars of gold in March 1971, the latter transaction not fructifying the reason of the seizure of the gold bars by the Central Excise authorities. The ITO estimated the value of 50 gold bars at Rs. 1,18,000 and brought the amount of tax as part of the assessee's chargeable income from unexplained sources. Parallel proceedings were taken by the ITO for the levy of penalty for concealment of income. In due course, these proceedings were taken over by the IAC who levied a penalty on the assessee in the sum of Rs. 2,00,000 under s. 271(1)(c) of the Act. The assessee carried the assessment order as well as the order of penalty in appeal. The Tribunal eventually dealt with both. They held that on the basis of the statements which the Central Excise authorities had obtained from Janardhanam, Govindaraja Chettiar and the assessee, the assessee did not have transactions as respects 25 gold bars during February, 1971 and 25 gold bars in March 1971. The Tribunal rejected the plea of the assessee that the statements he made before the Central Excise authorities admitting the transactions to be his, were obtained from him under coercion. Having held that the materials on record showed that the assessee was having dealings in gold bars, which he had kept outside his accounts, the Tribunal proceeded to estimate how much by way of unexplained income could be brought to assessment in respect of the assessee's investment in gold bars. According to the Tribunal, the statements obtained by the Central Excise authorities only showed that the assessee had delivered 25 gold bars through Janardhanam to Govindaraja Chettiar in February 1971. Adopting the value put on the gold bars by the ITO, the Tribunal estimated the value of 25 gold bars dealt with on that occasion at Rs. 59,000. Turning to the subsequent transaction which became abortive in March 1971, by reason of the seizure of the gold bars by the Central Excise authorities, the Tribunal expressed the view that this stock of 25 gold bars might well have been acquired by the assessee from out of the proceeds of sale of the earlier stock of 25 gold bars sold by the assessee to Govindaraja Chettiar. The Tribunal based their view on the fact that only one consignment of 25 gold bars was recovered by seizure by the Central Excise authorities and that was during March 1971. The evidence as respects the dealings by the assessee of another consignment of 25 gold bars could be found only in the statements made by Janardhanam and Govindaraja Chettiar and, to a lesser extent, by the assessee himself. On this basis, the Tribunal found it not unreasonable to infer that the proceeds of sale of 25 gold bars in February 1971, might have put the assessee in possession of funds to acquire the other consignment of 25 gold bars dealt with subsequently in March 1971. The Tribunal accordingly held that the value of the first 25 bars alone can be added as representing the undisclosed income of the assessee. This conclusion of the Tribunal entailed a reduction in the assessment of Rs. 59,000.
4. Turning to the order of penalty passed by the IAC, for the same assessment year, the Tribunal observed that the order was passed purely on the materials relied on by the ITO while making the assessment. The Tribunal observed that although there might be some justification for making an addition on account of unsatisfactory explanation on the assessee's part to account for the sources of the investment of 25 bars of gold, such evidence as there was on record, was inadequate to found his levy of penalty on the score that the assessee had concealed the particulars of his income. The Tribunal referred to the provisions of s. 69A (wrongly referred to in the order of the Tribunal as s. 69) and stated that although, under given circumstances the section gave power to the ITO to treat as income the value of any investment which the assessee had owned during the account year, the source of which the assessee was not in a position to satisfactorily explain, the mere existence of such a power under that provision will not enable the authorities to levy a penalty as if that was clear evidence showing that the assessee had earned income and had concealed it. On these reasoning's, the Tribunal held that there was no warrant for levy of penalty even on the basis that Rs. 59,000 representing the value of the first batch of 25 bars of gold was properly brought to assessment as his income. The Tribunal, nevertheless, took note of the circumstance that the statements made by the assessee before the Central Excise authorities clearly established that he had had a hand in the sale of 25 bars of gold in February 1971, to Govindaraja Chettiar. That sale, according to the Tribunal, might reasonably be estimated to have earned the assessee a profit of Rs. 6,000. Since no profit had at all been declared and brought to account by the assessee, in respect of the transaction of sale during February 1971, the Tribunal expressed the view that penalty must attach to the non-disclosure of this profit margin estimated to amount to Rs. 6,000. In this view, the Tribunal sustained the penalty to the extent of Rs. 6,000 deleting the balance of Rs. 1,94,000 from the order of penalty made by the IAC.
5. From the decision of the Tribunal both in the assessment and in the penalty proceedings, the Commissioner and the assessee demanded references to be made to this court. Both the applications were rejected by the Tribunal. Further proceedings were taken by both the parties before this court. This court, however, rejected the petition of the assessee, while ordering the application of the Department for reference. On the basis of the directions of this court in the Department's application, the Tribunal has since referred the following question of law :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting a sum of Rs. 59,000 out of Rs. 1,18,000 added under the head 'Other sources' representing unexplained investment in gold bars
2. Whether the Appellate Tribunal's finding is based on the valid materials and a reasonable view to take on the facts of the case
3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in reducing the penalty levied under section 27(1)(c) of the Income-tax Act, 1961, from Rs. 2,00,000 to Rs. 6,000 for the assessment year 1971-72
6. Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 69A of the Income-tax Act, 1961, the Appellate Tribunal was right in holding that no penalty could be imposed on the addition of Rs. 59,000 sustained by it under 'other sources' under section 27(1)(c) of the Income-tax Act
7. Whether the Appellate Tribunal's finding that the addition of Rs. 59,000 sustained by it under 'other sources' was not the assessee's concealed income is based on relevant materials and a reasonable view to take on the facts of the case ?'
8. Mrs. Nalini Chidambaram, learned junior standing counsel for the Department, submitted that the Tribunal was not justified in interfering with the addition of Rs. 1,18,000 made by the ITO under s. 69A of the Act and in reducing the addition to one-half of what was included in the assessment. The suggestion was that the Tribunal had no material whatever in support of the order reducing the assessment. Learned counsel relied on the language of s. 69A in support of her submission. Mr. Ramchandran, learned counsel for the assessee, however, submitted that the order of the Tribunal disclosed the materials on the basis of which the Tribunal had founded their order.
9. We must point out first that while there are two distinct questions of law awaiting our decisions against the order of the Tribunal relating to assessment, the only point for our consideration in respect of that part of the Tribunal's order is, whether there was material to support the Tribunal's conclusion that only Rs. 59,000 should be added to the income on account of the existence of the gold bars and the assessee's dealings there in as disclosed in the proceedings taken by the Central Excise authorities. We have earlier referred to the materials on the basis of which the ITO had made the assessment of Rs. 1,18,000 and also the reasoning of the Tribunal which led them to reduce the addition by one-half. We referred to the inference drawn by the Tribunal to the effect that although the assessee might be taken to have dealt with the two consignments of gold bars, 25 bars each, they were nevertheless at different points of time, one after the other, one during February, 1971, and the other during March, 1971. We also referred to the conclusion of the Tribunal that while the assessee was shown to have parted with gold bars in February, 1971, at a profit, there was nothing to show that the proceeds of that sale could not have been available with the assessee, from out of which a subsequent acquisition of 25 gold bars could have been effected which were detected by the Central Excise authorities in the subsequent month of March, 1971. We hold that this inference of the Tribunal based on probabilities of the case must be regarded as a factual inference for which there was ample material on record.
10. Mrs. Nalini Chidambaram submitted that the Tribunal in their order had referred to the fact that the sale by the assessee of 25 bars of gold to Govindaraja Chettiar was not paid for in whole then and there in February, 1971, itself, but only part payments had been made and hence it would be unreasonable for the Tribunal to draw the inference that the entire sale proceeds were available with the assessee for being reinvested in another consignment of 25 gold bars in March, 1971. This argument might well have been addressed, and was, in fact, addressed by the Department before the Tribunal, but was rejected on the ground of absence of probabilities. We do not think that we should entertain a fictional contention of this kind at this stage of reference. For although the two factual inferences might be equally plausible in any given case, as in the present one, we have to respect be equally plausible in any given case, as in the present one, we have to respect the inference which all along has found favor with the Tribunal, considering that the Tribunal is the ultimate fact-finding body in matters of this kind, and the High Court is not.
11. The result of this discussion, therefore, is that no error of law has been made out in the decision of the Tribunal in retaining Rs. 59,000 and deleting the rest of the addition made by the ITO towards the assessee's unexplained investment in gold bars.
12. As for the Tribunal's decision reducing the penalty to Rs. 6,000, the case of the Department, if anything, is weaker still. Learned junior standing counsel referred to the provisions of s. 69A as warranting the penalty action in this case. We agree with the Tribunal, however, in holding that those provisions, by themselves, cannot support an order of penalty.
13. Mrs. Nalini Chidambaram urged another contention bearing on the Tribunal's jurisdiction to reduce the quantum of penalty. Apart from the fact that a question of this kind had not been argued in the appeal before the Tribunal, it seems to us that on the findings rendered by the Tribunal, based on materials before them, the Tribunal was entitled to fix the quantum alike of the estimated addition in the assessment on account of unexplained investment and the quantum of penalty on account of concealment of income. Nothing contained in s. 69A complies either the ITO or any of the appellate authorities to choose between the two alternatives, namely, either to assess the value of unexplained investments in whole or not to assess any portion of the value of the investment. The position, indeed, is quite otherwise. Depending on the facts and circumstances of each case, it is open to the Tribunal, as much to the ITO, to determine how much of the value of unexplained investments can be really regarded as representing the undisclosed income of the assessee. It is from this point of view that we had upheld the Tribunal's decision to sustain a moiety of the addition made by the ITO, namely, Rs. 59,000 disallowing the balance.
14. It was then urged by the learned junior standing counsel that it was not the assessee's case that one-half of the value of the investment represented the assessee's undisclosed income. This may be so. But nothing prevents the Tribunal from fixing the quantum of income at a reasonable figure on the basis of unexplained investments. The question of reduction in the quantum of assessment as well as in the quantum of penalty depends entirely on the evaluation of the relevant materials by the Tribunal, and, in that sense any estimate of income which gets so determined is a question of degree, and hence one of pure fact. As we have earlier mentioned, even in respect of the penalty, it was nobody's case that there was an element of profit on the sale of 25 bars of gold during February, 1971. Nevertheless, the Tribunal had sustained the penalty to the extent of Rs. 6,000 only by reference to a plausible profit element in the transaction which the assessee had with Govindaraja Chettiar as respects the 25 bars of gold. We have made mention of these matters only for the limited purpose of showing that in the events that happened, the question of assessment as well as of penalty largely turned on the particular view of the facts which the Tribunal thought was a reasonable view, to entertain. In that sense, therefore, we do not find any scope at all for our interference with the conclusion of the Tribunal, both in the matter of assessment and in the matter of penalty.
15. For the reasons stated above, our answers to all the questions of law are against the Department and in favor of the assessee. There will, however, be no order as to costs.