1. The Income-tax Appellate Tribunal, Madras Bench, has referred the following question for the opinion of this court, pursuant to the direction of this court made in T.C.P. Nos. 9 and 10 of 1971 dated March 2, 1972 :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalties of Rs. 50,000 and Rs. 25,000, levied under Section 271(1)(c) of the Income-tax Act, 1961, for the respective assessment years 1961-62 and 1962-63?'
2. A business in the name of M. M. Ali Motor Service was being carried on by Mir Madhi Hussain, father of the assessee, till his death and thereafter by the assessee himself. In the assessments for the assessment years 1956-57 and 1957-58, the assessee claimed that one-eighth of the income from that business was diverted by an overriding title to his mother, who was an heir under the Mohamedan Law, entitled to one-eighth share in the estate of the deceased, Mir Madhi Hussain. This claim was accepted by the department. At the stage of the assessment year 1958-59, and for succeeding years, the stand of the assessee was that a firm consisting of his mother, Sakina Begum, the erstwhile employee called Hussain Baksh and theassessee himself had taken over the business with effect from April 1, 1957, and that the said firm filed a separate return of income and application for registration under Section 26A of the Indian I.T. Act, 1922. It has been held that the said firm was not a genuine firm and that matter has become final because this court had confirmed the view of the'.Tribunal that the said firm was not a genuine firm.
3. Further, in the assessment of the income of the assessee for the two years with which we are concerned, there were two additions made. The assessee had been carrying on in earlier years a business of plying lorries. He had admitted that two lorries were plying in the year ended March 31, I960, and the income from that business was assessed in the assessment year 1960-61. In the assessment year 1961-62, the assessee did not declare any income from that source on the ground that both the lorries had been sold to one Mir Baquir Ali. But the registration of those vehicles continued to stand in the name of the assessee at least till March 31, 1962. Therefore, the ITO as well as the AAC and the Tribunal took the view that the assessee had not made out his case that he had sold away the lorries to Mir Baquir Ali. It must be pointed out that the assessee was not able to give the exact address of Mir Baquir Ali to enable the ITO to serve summons on him and the attempts on the part of the department to trace the said Mir Baquir Ali failed and, therefore, he could not be examined. As far as the books are concerned, the books of the assessee showed that a consideration of Rs, 36,000 for the sale of the two lorries was received in cash through book entries passed in the account of Mir . Baquir Ali. Under those circumstances, all the authorities held that the assessee alone should be taxed in respect of the income from the two lorries and consequently added a sum of Rs. 7,000 for the assessment year 1961-62 and a sum of Rs. 5,000 for the assessment year 1962-63.
4. The other item relates to the estimate of the income from the business of petrol bunk carried on by the assessee. The assessee had debited on account of expenditure of this business a sum of Rs. 6,000 in the previous year. But in the year 1961-62, he had shown the expenditure as Rs. 12,000. Since this extra expenditure was not fully vouched, the ITO made an addition of Rs. 5,000 with regard to the income from the petrol bunk business for the assessment year 1961-62 and similarly for the assessment year 1962-63, he added a sum of Rs. 6,000.
5. All these additions have become final, since they have been confirmed by the Income-tax Appellate Tribunal.
6. The question with which we are concerned in the present reference is the penalty levied on the assessee. The IAC levied a penalty of Rs. 50,000for the first year and a penalty of Rs. 25,000 for the second year. For the purpose of levying these penalties, he took into account three factors :
(1) Instead of showing the entire income M/s. M. M. Ali Motor Service, namely, Rs. 1,35,613, as his individual income, the assessee showed it as the income of a non-existing firm and included only a part of it, namely, Rs. 15,333, in his income ;
(2) inclusion of the income from the lorry service for the two years; and
(3) the addition to the income for the petrol bunk business for the two years in question.
7. The penalties levied; by the IAC were set aside by the Tribunal. Hence, the reference in question.
8. We are of the opinion that the Tribunal was right in holding that with reference to the first and the third aspects referred to above the assessee could not be said to have concealed particulars of income or deliberately furnished inaccurate particulars thereof. As far as the income of M. M. Ali Motor Service is concerned, even the department was not certain about the correctness of its stand that there was no genuine firm. That was the reason why, while refusing registration and making an assessment of the entire income in the hands of the assessee, the ITO himself made a protective assessment in the name of the firm itself. Even the AAC at one stage held that the firm was genuine and was entitled to registration and it was only at later stages that the Tribunal took the view that the firm was not genuine, which view was confirmed by this court. Under these circumstances, it cannot be held that the assessee had deliberately suppressed or concealed the income or furnished inaccurate particulars so as to attract liability to penalty under Section 271(1)(c) of the I.T. Act, 1961.
9. With regard to the addition made to the income from the petrol bunk business, here again it was only on the basis of an estimate, since the assessee was not able to support by vouchers the expenditure which he claimed to have incurred. In such a situation, it could not be held that the assessee concealed particulars of income or furnished inaccurate particulars thereof.
10. However, the position is different with regard to the addition of Rs. 7,000 for the former year and Rs. 5,000 for the latter year on account of the income from the running of lorries. It was the assessee who stated, when the assessment of income for the assessment year 1961-62 was taken up, that he had sold the lorries. But the assessee was not able to give the exact address of Mr. Baquir Ali, to whom he had claimed to have sold the lorries ; nor was there any evidence of sale except the book entries made for the receipt of the consideration of Rs. 36,000.
11. There was one very important factor, namely, the permits of the lorries stood in the name of the assessee, notwithstanding his claim that ho sold the lorries. No buyer who had parted with a cash of Rs. 36,000 would have allowed the permits of the lorries to remain in the name of the seller or transferor for such a long time and equally the assessee having sold the lorries would not have allowed the permits to remain in his name because for any violation of the conditions of the permits he alone would be held liable, even though such violation might have been the result of the conduct of the purchaser to whom the assessee had claimed to have sold the lorries. These circumstances clearly indicate that the case of the assessee that he sold away the two lorries to one Mir Baquir Ali was nothing but a false story. In such a context, the inference is irresistible that the assessee deliberately concealed the income from the running of the two lorries. Therefore, the Tribunal was in error in deleting or setting aside the orders of penalty in their entirety and it should have held that the assessee was liable to penalty with reference to the concealment of income from the business of plying the two lorries for the two years in question.
12. It is not possible for this court to say as to what would have been the quantum of penalty, if the Tribunal had come to the conclusion that the penalty was leviable with reference to the aforesaid item of income alone and the Tribunal will have to do the same when the matter goes back.
13. Under these circumstances, the question is answered in the negativeand against the assessee to the extent indicated above. There will be noorder as to costs.