Calcutta High Court
Commissioner Of Income-Tax vs Ratanlal Surekha on 5 June, 1989
Equivalent citations: [1991]190ITR367(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1964-65, the following questions of law have been referred to this court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal had no evidence or had relied on irrelevant material for holding that the assessee had been able to rebut the presumption arising under the Explanation to Section 271(1)(c) of the Income-tax Act, 1961, that the assessee's failure to return the correct income arose either from fraud or from gross or wilful neglect on his part ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the order of penalty made under Section 271(1)(c) of the Income-tax Act, 1961 ?"
2. The facts shortly stated are that, in the course of assessment proceedings, the Income-tax Officer noticed that the assessee claimed to have taken a loan of Rs. 1 lakh from M/s. Raj Kumar Jain and Co., on September 6, 1963. After making an enquiry, he concluded that the assessee had concealed his income to this extent and consequently added the amount as the assessee's income from concealed sources. Simultaneously he initiated proceedings under Section 274(2)/273 read with Section 271(1)(c) of the Income-tax Act. Since the minimum penalty leviable was more than Rs. 1,000, he referred the same to the Inspecting Assistant Commissioner of Income-tax. At the time of hearing, the following points were urged on behalf of the assessee :
(1) Notice under Section 131 was issued when the party was out of station and no attempt was made to issue another notice when the party was available and could be traced.
(2) An appeal is pending before the Appellate Assistant Commissioner and power to impose the penalty was with the Appellate Assistant Commissioner and not with the Inspecting Assistant Commissioner.
(3) The case was originally referred to another Inspecting Assistant Commissioner and the present Inspecting Assistant Commissioner has no jurisdiction.
(4) Reference had been barred by limitation.
3. The Inspecting Assistant Commissioner held that there was no merit in any of the contentions and ultimately levied a penalty of Rs. 1 lakh upon the assessee.
4. The assessee came in appeal before the Tribunal which, vide its consolidated order relating to this and a similar appeal for the subsequent year, allowed the appeal and cancelled both the penalties. The detailed reasons are as under :
"We have heard counsel for the assessee and the departmental representative. So far as the assessment year 1964-65 is concerned, the penalty levied on the basis of the confession said to have been made by a partner of the creditor-firm is unsustainable. Admittedly, the assessee asked for an opportunity to cross-examine the said partner if his confession was sought to be used against him and that opportunity was not vouchsafed to him. If the partner had made a confession, we fail to see how the right to cross-examine that partner could be denied to the assessee on the ground that the party was not traceable. In the penalty proceedings, the Inspecting Assistant Commissioner relied upon the confession said to have been made by the partner of the creditor-firm which was not subjected to the test of cross-examination. This circumstance which is violative of the principles of natural justice vitiates the penalty order. By producing the confirmation letter of the creditor-firm and by showing that the addition in the assessment, resulting in a difference of more than 20% between the returned income and the assessed income, was made on the statement of a person which was not subjected to the test of cross-examination, the assessee can be said to have displaced the presumption enacted in the Explanation under Section 271(1)(c). It is now a well-settled proposition that the said presumption can be rebutted by a preponderance of probability. Once it is held that the assessee has discharged the onus of proof cast upon him by the Explanation, the main paragraph of Section 271(1)(c) as interpreted by the Supreme Court in the case of CIT v. Anwar Ali [1970] 76 ITR 696 comes into play. The Department has not proved by any cogent evidence that the amount credited as loan taken from M/s. Raj Kumar Jain and Co. was the income of the assessee and that the assessee failed to disclose that income in his return. The penalty levied for the assessment year 1964-65 is unsustainable and it is hereby cancelled."
5. It appears that, at the time of finalisation of the statement of case, it was pointed out to the Tribunal that the assessment order in question on the basis of which the penalty of Rs. 1,00,000 had been levied by the Inspecting Assistant Commissioner was itself set aside by the Tribunal in the quantum appeal.
6. Mr. Naha, learned counsel for the Revenue, has submitted that it is not possible at this stage to ascertain what has actually happened in the quantum assessment after the decision of the Tribunal.
7. We have already stated the facts and circumstances of this case as appearing from the order of the Tribunal. The Tribunal has found that the Department has not proved by any cogent evidence that the amount credited as loan taken from M/s. Raj Kumar Jain and Co. was the income of the assessee and that the assessee failed to disclose that income in his return. The Tribunal, on the facts, came to the finding that there was no case for levying penalty. That apart, the order of penalty is vitiated because of non-compliance with the principles of natural justice. The assessee was not afforded any opportunity to cross-examine the partner whose confession was sought to be used against him. Accordingly, the confession on the basis whereof penalty was levied ought not to have been relied on by the Inspecting Assistant Commissioner. This has vitiated the penalty proceeding. In our view, on the facts of this case, the Tribunal has come to a correct conclusion.
8. We, therefore, answer the first question in the negative and the second question in the affirmative, both in favour of the assessee and against the Revenue.
9. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
10. I agree.