Andhra HC (Pre-Telangana)
Commissioner Of Income Tax vs Sri Venkateswara Timber Depot on 22 January, 1996
Equivalent citations: [1998]230ITR675(AP)
Author: Syed Shah Mohammed Quadri
Bench: S.S Mohammed Quadri, Y.V Narayana
JUDGMENT Syed Shah Mohammed Quadri, J.
1. This income-tax case arises out of the penalty proceedings. The CIT, Visakhapatnam, filed this income-tax case under s. 256(2) of the IT Act, 1961 (for short "the Act"), praying this Court to direct the Tribunal to state the case and refer the following as questions of law :
"1. Whether, on the facts and in the circumstances of the case and in law the Tribunal was correct in holding that the provisions of Expln. 1 to s. 271(1)(c) do not apply disregarding its earlier finding that the credits have not been satisfactorily explained ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that telescoping of cash credits into the gross profit addition would not lead to the conclusion that there was concealment of income ?
3. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in limiting the levy of penalty under s. 271(1)(c) with reference only to two cash credits aggregating to Rs. 25,000 when the Tribunal by its order in ITA Nos. 797 & 798/Hyd/1981 dt. 21st October, 1982, allowed at the request of the assessee the telescoping of the entire amount of Rs. 1,21,000 of cash credits into the gross profit addition ?"
2. The respondent herein is the assessee. It is a firm having five partners carrying on business in timber and bamboo. There were certain cash credits in the books of account amounting to Rs. 1,21,000 and interest of Rs. 8,131. The ITO added a sum of Rs. 2,11,246 as the income. But, on appeal the amount was reduced to Rs. 1,74,350. It was further reduced to Rs. 1,50,000 by the Tribunal on further appeal. The assessing authority initiated penalty proceedings and after enquiry concluded that the credits represented the assessee's concealed income and levied the penalty of Rs. 99,430. That order of the ITO was set aside by the CIT(A) on appeal. On further appeal to the Tribunal, it sustained two credit amounts of Rs. 25,000 each and interest of Rs. 1,350. Having been aggrieved by the said order, the CIT filed an application under s. 256(1) of the Act to refer the above said questions as questions of law. That application having been rejected, the present application is preferred by the CIT.
3. Mr. S. R. Ashok, learned standing counsel for the Department, vehemently contended that once the addition had been upheld in the assessment proceedings, in the penalty proceedings the Tribunal was not justified in limiting the addition to only two items of Rs. 25,000 each.
The short question that arises for consideration is : Whether the order of the Tribunal suffers from any illegality ?
4. The present proceedings relate to the asst. yr. 1976-77. With effect from 1st April, 1976, s. 271 has been amended and a proviso is added to Expln. 1. It would be apt to read Expln. 1 here which is as follows :
"Explanation 1. - Where in respect of any facts material to the computation of the total income of any person under this Act, (A) such person fails to offer an explanation or offers an explanation which is found by the ITO or the AAC to be false, or (B) such person offers an explanation which he is not able to substantiate, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed :
Provided that nothing contained in this Explanation shall apply to a case referred to in clause (B) in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him."
5. From a perusal of clause (B) of the Explanation and the proviso thereto, it is evident that if the explanation offered by any person has not been substantiated by him, the items of cash credit, added or disallowed in computing the total income, shall be deemed to represent the income in respect of which particulars have been concealed for purposes of clause (c) of s. 271 of the Act. It may be pointed out that the proviso which controls clause (B) says that the provisions of clause (B) shall not apply to a case when the amount added or disallowed as a result of rejection of any explanation offered by such person provided he satisfied two requirements, viz., (i) that the explanation is bona fide, and (ii) that he has disclosed all the facts relating to the same and which are material to the computation of his total income. It is only when clause (B) is attracted, viz., where a person has offered an explanation and he has not been able to substantiate that explanation that further enquiry into the presence of the requirements of the proviso has to be made. But if, in a given case as in this case, the Tribunal expresses the opinion that no finding that the assessee has not been able to substantiate the explanation, can be recorded, the amount added or disallowed cannot be deemed to represent the income in respect of which particulars have been concealed for purposes of clause (c) of s. 271 of the Act. In such a situation, there is no need to look to the requirements of the said proviso to the Explanation.
In the instant case the Tribunal recorded the following finding, viz. -
". . . It is also not possible to say that the assessee is unable to substantiate its contention."
6. The Tribunal has also adverted to the findings of the CIT(A) that there was no evidence before the Department to prove that the credits represent concealed income which was accepted by the CIT. On these facts, in our view, the Tribunal has committed no illegality in declining to refer the questions above noted. We find no merit in the ITC. It is accordingly dismissed. No costs.