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Vijoy Laxmi Stores Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 506 of 1975
Judge
Reported in[1986]159ITR333(Cal)
ActsIncome Tax Act, 1961 - Sections 271(1) and 274
AppellantVijoy Laxmi Stores
RespondentCommissioner of Income-tax
Appellant AdvocateSanjoy Bhattacharjee, Adv.
Respondent AdvocateA.C. Moitra, Adv.
Cases ReferredLeafy v. National Union of Vehicle Builders
Excerpt:
- .....income but also disallowed the claim of interest thereon as a deduction in computing business income. penalty proceeding under section 271(1)(c) of the income-tax act, 1961, was initiated and the matter was referred to the inspecting assistant commissioner of income-tax who held that the assessee has concealed the particulars of income and furnished inaccurate particulars thereof. he, therefore, imposed penalty amounting to rs. 17,000 for the assessment year 1961-62, rs. 71,000 for the assessment year 1962-63 and rs. 40,000 for the assessment year 1963-64. the assessee went on appeal before the appellate tribunal. the tribunal on a consideration of the facts and circumstances of the case, held that the assessee failed to establish the true nature of the credit entries appearing in.....
Judgment:

Ajit K. Sengupta, J.

1. This is a reference under Section 256(2) of the Income-tax Act, 1961, for the assessment years 1961-62 to 1963-64. The assessee is a registered firm. In the course of the assessment proceedings for the said assessment years, the Income-tax Officer came across a number of cash deposits. The assessee failed to explain the nature and source of the said cash deposits. The Income-tax Officer not only treated the unexplained cash deposits as the assessee's income but also disallowed the claim of interest thereon as a deduction in computing business income. Penalty proceeding under Section 271(1)(c) of the Income-tax Act, 1961, was initiated and the matter was referred to the Inspecting Assistant Commissioner of Income-tax who held that the assessee has concealed the particulars of income and furnished inaccurate particulars thereof. He, therefore, imposed penalty amounting to Rs. 17,000 for the assessment year 1961-62, Rs. 71,000 for the assessment year 1962-63 and Rs. 40,000 for the assessment year 1963-64. The assessee went on appeal before the Appellate Tribunal. The Tribunal on a consideration of the facts and circumstances of the case, held that the assessee failed to establish the true nature of the credit entries appearing in his books of account. The Tribunal also held that the assessee failed to show that the consideration for hundis was real and that the same was not in the nature of income. For the detailed reasons given in the quantum appeals of the assessee, the Tribunal held that theassessee had concealed particulars of its income and there is evidence to hold that the assessee had income which it had concealed. In the opinion of the Tribunal, both the ingredients of the offence, viz., concealment and existence of income, have been proved and, therefore, the penalty provisions under Section 271(1)(c) of the Income-tax Act 1961, are attracted. The Tribunal, therefore, confirmed the penalty imposed by the Inspecting Assistant Commissioner and dismissed the appeal preferred by the assessee-

2. On the aforesaid facts, the following questions of law have been referred to this court:

' 1. Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that both the ingredients of the offence, viz., concealment and existence of income have been proved and, therefore, the penalty provisions under Section 271(1)(c) of the Income-tax Act, 1961, are attracted ?

2. Whether, on the facts and circumstances of the case, the income-tax authorities were justified in imposing penalty on the assessee under Section 271(1)(c) of the Income tax Act, 1961 '

3. Mr. Sanjoy Bhattacharjee, the learned advocate appearing for the applicant, has contended that there are certain infirmities in the penalty proceedings which would render the orders of penalty illegal and invalid. His first submission is that in this case, notices were issued by the Income-tax Officer whereas the penalty was imposed by the Inspecting Assistant Commissioner. Therefore, the orders are void. In support of his contention, he has relied on a decision in the case of Shop Siddegowda and Family v. CIT : [1964]53ITR57(KAR) . In that case, one Income-tax Officer issued a notice under Section 28(3) of the Indian Income-tax Act, 1922, to the assessee calling upon him to appear and show cause why penalty should not be levied and the assessee submitted his explanation in writing, but did not choose to appear or ask for an opportunity to adduce evidence or address arguments. The successor-officer had imposed penalty after considering the written representations of the assessee, without giving a fresh opportunity of being heard. As the assessee did not seek to reopen the proceedings as contemplated by the first proviso to Section 5(7C) of the old Act, the Supreme Court upheld the imposition of penalty. This case has no relevance at all. Here, the Income-tax Officer initiated the penalty proceedings in the course of the assessment proceedings and referred the matter to the Inspecting Assistant Commissioner for the purpose of imposition of penalty. The Inspecting Assistant Commissioner issued notices under Section 274(2) read with Section 271(1)(c) of the Act to the assessee and the assessee in response to the said notices appeared before the Inspecting Assistant Commissioner and addressed arguments. Thereafter,the Inspecting Assistant Commissioner imposed penalty. The question of any successor-officer imposing penalty in this case does not arise.

4. His next submission is that the principles of natural justice have been violated in this case inasmuch as the assessee did not get the opportunity to meet the case made against it. The Inspecting Assistant Commissioner did not disclose the evidence relied on by him before he proceeded to impose the penalty. Mr. Bhattacharjee, therefore, contends that the order passed by the Inspecting Assistant Commissioner is a nullity and the order in appeal is also a nullity. In support of his contention, he has relied on a decision in the case of Semjuddin and Co, v. State of Orissa, : AIR1974Cal296 . This decision reiterates the well-settled principles that if an order is passed in violation of rules of natural justice, such order would be a nullity and if the order of an inferior tribunal is a nullity, the decision of the Appellate Tribunal from the order of the inferior tribunal can have no better effect.

5. He has also relied on a decision in the case of Leafy v. National Union of Vehicle Builders [1910] 2 All ER 713 , where Megarry J., held that lack of natural justice before the trial body could not be cured by a sufficiency of natural justice before an appellate body and if there is a defect of natural justice, the proper course is for the body to which the jurisdiction is confined to rehear the matter de novo.

6. In our view, the aforesaid decisions have no application to the facts of this case. The penalty proceedings were initiated in the course of the assessment proceedings. The assessee appeared in response to the notices issued under Section 274(2) read with Section 271(1)(c) of the Act by the Inspecting Assistant Commissioner. The assessee contended before the Inspecting Assistant Commissioner that no penalty for concealment of income should be imposed. It was also urged that the onus was on the Department to prove the concealment of income by the assessee and the assessee did not conceal any income or furnish inaccurate particulars thereof. It was further submitted that all information relating to the creditors were furnished. Thus, the assessee knew the case which it was required to meet in the penalty proceedings. The orders imposing penalty were passed after hearing the assessee. There was, therefore, no violation of rules of natural justice.

7. Mr. Bhattacharjee then contended that the Inspecting Assistant Commissioner did not consider any fresh material, but proceeded on the basis of the findings given in the income-tax assessments. It is a case where the penalty was imposed by the Inspecting Assistant Commissioner after evaluating the evidence placed on record by the assessee and the Income-tax Officer in the course of the assessment proceedings. Thus on the basisof the principles laid down in the case of CIT v. Anwar Ali : [1970]76ITR696(SC) , the order of penalty cannot be sustained. He has submitted that in the absence of cogent material evidence, apart from the falsity of the explanation of the assessee, no penalty could be imposed. The Inspecting Assistant Commissioner in this case did not find out any material apart from the material in the assessment orders to support his finding that the assessee concealed the income or particulars of such income. He has also relied on another decision of the Supreme Court in the case of CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , where the Supreme Court observed that the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. He has also drawn our attention to the decision of this court in the case of Sikri & Co. Pvt. Ltd. v. CIT : [1977]106ITR682(Cal) , where this court, following the judgment of the Supreme Court in the case of Anwar Ali : [1970]76ITR696(SC) , held that where certain additions are made to the income of the assessee under Section 68 of the Act because of the failure of the assessee to prove the source of certain sums, and there is no other evidence to show that there is any concealment on the part of the assessee, no penalty can be levied. In that case, the Tribunal held that it was not proved that there was any concealment by the assessee and this court upheld the decision of the Tribunal.

8. Mr. Bhattacharji has also relied on the decision of this court in the case of CIT v. Rajaram Pannalal & Brothers : [1981]127ITR679(Cal) , in support of his contention, that even for the interest on cash credits disallowed in the assessment, penalty cannot be imposed as there is no disclosure made by the assessee that the cash credits were not genuine. In this case, the assessee had obtained loans on hundis and the assessee never admitted that such cash credits are bogus or represented its own concealed income. There was, therefore, no scope for levying any penalty even on the interest disallowed.

9. The question before us is whether, on the facts and in the circumstances of this case, the Tribunal was justified in upholding the orders levying penalty. Each case will depend on its own facts. We have carefully considered the reasons given by the Inspecting Assistant Commissioner and the Appellate Tribunal. The Tribunal has considered the relevant circumstances justifying the imposition of penalty. In the case of Anwar Ali : [1970]76ITR696(SC) , the Supreme Court has not laid down that under no circumstances, the material gathered in the assessment proceeding can be relied on for imposing penalty. Evidence given in the assessment proceeding is good evidence in the penalty proceeding but, before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars thereof. The Tribunal has held that the assessee has concealed the particulars of its income and there is evidence to hold that the assessee had income which it had concealed. The Tribunal also held that both the ingredients of the offence, namely, existence of income and concealment thereof, have been proved and, therefore, the penalty provisions under Section 271(1)(c) are attracted. According to the Tribunal, the Department has rightly proved that the assessee had not only income but also concealed its existence and, therefore, the penalties imposed are reasonable and well-founded. These findings have not been challenged as being perverse or being based on no evidence. The conclusion drawn by the Appellate Tribunal are all findings of fact recorded against the assessee. It is not a case where merely on the basis of the falsity of the explanation, penalty was imposed. The Tribunal came to a positive conclusion that the loans were not genuine at all and the cash deposits represented the income of the assessee. In arriving at the said conclusion, the Tribunal, inter alia, took into consideration that the assessee did not file any confirmatory letters from the alleged creditors; that the summons issued by the Department could not be served on the creditors; that the discharged hundis and the signatures thereon could not be verified and that the assessee did nothing to prove the genuineness of the loans. The assessee did not get any statement of the creditors recorded. It was not proved that the consideration for hundis was real. The signatures of the creditors and acceptance of the hundis were not verified nor were the signatures proved. The hundis were not discounted, nor could the parties be traced or identified. There is nothing on the record to show that the hundis were endorsed, negotiated or transferred. There was therefore, no presumption that the hundis were drawn or accepted for a valid consideration. The assessee claimed that the loans were obtained under hundis and, accordingly, it was for the assessee to discharge, by leading evidence, the primary onus which lay on the assessee in respect of its claim that the hundi loans were genuine. Mere production of the discharged hundis and furnishing of the file number of the creditors did not shift the onus of proof to the Department. The assessee failed to establish the identity of the creditors and to prove that the loans were genuine and that the alleged creditors had capacity to advance the alleged loans. The refusal of the person to make an appearance before the departmental authority, their avoidance of summons under Section 131 of the Act and their conduct in not filing confirmatory letters are relevant factors which were taken into consideration by the Tribunal inarriving at its conclusion. Having regard the entirety of the circumstances and the cumulative effect of all the facts found by the Tribunal, if the Tribunal came to the conclusion that the assessee had income which it had concealed and the existence of the income and concealment thereof had been proved, it cannot be said that the conclusion of the Tribunal is either erroneous or unreasonable or the entirety of the circumstances did not reasonably point to such conclusion.

10. In the premises, the questions in this reference are answered in the affirmative and in favour of the Revenue.

11. There will be, however, no order as to costs.

R.N. Pyne, J.

12. I agree.


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