Punjab-Haryana High Court
Commissioner Of Income-Tax vs Kamal Chemicals Industries on 7 February, 2005
Equivalent citations: (2006)200CTR(P&H)219, [2005]277ITR150(P&H)
Author: Viney Mittal
Bench: Viney Mittal
JUDGMENT
G.S. Singhvi J.
1. In this appeal filed under Section 260A of the Income-tax Act, 1961 (for short, "the Act"), the appellant has prayed for determination of the following question of law :
"Whether, on the facts and circumstances of the case, the hon'ble Tribunal was right in law in cancelling the penalty levied under Section 271(1)(c) of the Income-tax Act particularly when the assessee had surrendered the amount of cash credit in the revised return of income when it failed to prove the genuineness of the creditors, particularly in view of the judgment of the hon'ble Punjab and Haryana High Court in the case of Mahavir Metal Works v. CIT [1973] 92 ITR 513 wherein it has been held that the filing of revised return is an admission by the assessee that the income was concealed ?"
2. For the assessment year 1987-88, the assessee filed a return on August 31, 1987, declaring an income of Rs. 1,60,010. In the course of the assessment proceedings, counsel for the assessee made an offer to surrender a sum of Rs. 2,95,000 by stating that his client wanted to purchase peace subject to the condition that there would be no penalty and prosecution. The Assessing Officer did not accept the surrender made on behalf of the assessee and finalised the assessment vide his order dated March 31, 1989, at an income of Rs. 3,74,020 by adding Rs. 3,40,000 as income from undisclosed sources. He also initiated penalty proceedings under Sections 271(1)(a), 271(1)(c) and 273(1)(b) of the Act. The Commissioner of Income-tax (Appeals), Rohtak (for short, "the CIT(A)"), vide his order dated February 3, 1992, partly accepted the appeal and directed the Assessing Officer to verify the statement of peak deposits furnished by the appellant with a further direction that if it was found in order, then he should restrict the addition to the peak amount shown by the appellant or the peak amount arrived at by him after verification. Paragraphs 5 and 6 of the order passed by the Commissioner of Income-tax (Appeals) read as under :
"5. The 13th and 14th grounds of appeal are against addition of Rs. 3,45,000 in the income of the appellant.
5.1 It is amply clear from paras. 2 and 3 of the order that in spite of the repeated opportunities, the appellant failed to produce all the creditor(s) in question except Sh. Chattar Singh before the Income-tax Officer. Shri Chattar Singh's statement was such that it would be safely concluded that neither he was in a position to advance Rs. 50,000 to the appellant nor the credit in his name was genuine.
Even affidavits of the two creditor(s), namely, Sh. Nihal Singh and Sh. Mehar Singh, were not filed before the Income-tax Officer and affidavits of the rest of the creditor(s) (excluding Sh. Chattar Singh) could not be relied upon as they were not produced before the Income-tax Officer to enable him to judge the veracity of the assertions made therein. On perusal of their assessment orders passed in a summary manner, the Income-tax Officer did not find them men of means, when they were not available at the addresses given in the affidavits and assessment order. When cornered, the appellant filed three affidavits of three persons including one partner of the appellant firm affirming that they know these persons and their activities and their associations with them in getting the deposits made with the appellant firm and also offered to surrender the peak amount of credits, i.e., Rs. 2,95,000 subject to no penalty, prosecution and interest. All the above facts go to show that the appellant at no stage could prove the genuineness of the credits and tried to prolong the issue unnecessarily in an attempt to hoodwink the Department. In view of this, the Income-tax Officer was fully justified in treating the credits of Rs. 3,45,000 as unexplained. The Income-tax Officer's action to this extent is confirmed subject to direction in para. 6.1 of this order.
6. The 15th ground of appeal is that at any rate and without prejudice to the above grounds of appeal, the Income-tax Officer erred in not working out the peak of the credits.
6.1 As said earlier, the appellant offered to surrender Rs. 2,95,000 on account of peak of the credits during the course of assessment subject to no penalty, prosecution and interest. While the Income-tax Officer rightly did not accept the surrender he also did not give any reason as to why the addition on account of peak could not be made instead of Rs. 3,45,000. The appellant had given the working of the peak in his unsigned offer given on February 21, 1989. The working of the peak has also been given before me in appellate proceedings as under :
Statement of peak deposits
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Date Particulars Cr. Dr. Balance Cr.
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25-8-1986 By Chattar Singh 45,000.00 Nil 45,000.00
14-11-1986 By Thakur Jai Singh 50,000.00 Nil 95,000.00
14-11-1986 By Ch. Nihal Singh 50,000.00 Nil 1,45,000.00
14-11-1986 By Mehar Singh 50,000.00 Nil 1,95,000.00
24-11-1986 By Ch. Jagpal Singh 50,000.00 Nil 2,45,000.00
22-12-1986 By Ch. Badlu Ram 50,000.00 Nil 2,95,000.00
29-1-1987 To. Ch. Nihal Singh Nil 50,000 2,45,000.00
17-2-1987 By Manphool Singh 50,000.00 Nil 2,95,000.00
23-3-1987 To Mehar Singh Nil 50,000 2,45,000.00
31-3-1987 To Thakur Jai Singh Nil 40,000 2,05,000.00
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In view of the above, the Income-tax Officer is directed to verify the statement of peak deposits furnished by the appellant as above and if he finds the same in order, he should restrict the addition to the peak amount shown by the appellant or the peak amount arrived at by him after verification."
3. The appeal filed by the Revenue against the aforementioned order was dismissed by the Income-tax Appellate Tribunal (Delhi Bench "D", New Delhi) (for short, "the Tribunal"), vide its order dated February 17, 1999.
4. In the meanwhile, the Assessing Officer passed order dated August 24, 1992, and imposed penalty of Rs. 1,38,310 under Section 271(1)(c) of the Act by holding that the assessee had introduced its own money in the names of bogus persons as creditors and later on surrendered the same in the revised return. The Commissioner of Income-tax (Appeals) dismissed the assessee's appeal and upheld the penalty order. However, in the further appeal, the Tribunal remanded the case to the Assessing Officer for fresh determination of the issue of penalty. The relevant extract of order dated July 14, 2000, passed by the Tribunal reads as under :
"After perusing the material, rival submissions and the case law cited by counsel, we are of the view that the matter should go back to the file of the Assessing Officer to examine the middleman through whom the loans were taken. The Assessing Officer will also examine the aspect that when the loan has been repaid and after ascertaining all the facts, then he will consider the aspect of imposition of penalty afresh. There is no dispute that penalty proceedings are independent proceedings than the proceedings of assessment. It is also true that all the confirmations were filed before the Assessing Officer along with the affidavits of the concerned cash creditors. From the records placed here before us, it emerges that all the cash creditors, are duly assessed to income-tax since the assessment year 1987-88. Therefore, the genuineness of the cash creditors is proved. It is also worth mentioning here that this is not a case of capital build up as learned counsel has stated that all the loans have already been repaid to the respective cash creditors through the middleman. Therefore, in view of these facts and circumstances the matter is restored and the Assessing Officer is directed to decide the issue afresh in view of our observations made above. The Assessing Officer is also directed to allow the assessee opportunity to produce the middleman, Shri Naresh Kumar, and other evidence if he wants to file. We order accordingly.
(underlining is ours)
5. In compliance with the direction given by the Tribunal, the Assessing Officer reconsidered the matter and passed order dated May 23, 2001, whereby he again imposed penalty of Rs. 1,38,310 on the assessee. The appeal filed by the assessee against the second penalty order was allowed by the Commissioner of Income-tax (Appeals). He held that the assessee had been able to establish the identity of the creditors and the source of their income. He further held that as per the Tribunal's order, the genuineness of the cash credits is also proved and this could not even be a case of capital build up because the amounts were returned to the creditors. The Commissioner of Income-tax (Appeals) then observed that there was nothing in the statement of Naresh Kumar (middleman) to cast doubt on the genuineness of the transaction relating to cash credits and that the Department has failed to prove that the assessee had deliberately furnished inaccurate particulars of the income or filed an incorrect return. The Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) and dismissed the appeal filed by the Revenue by making the following observations :
"There is no dispute that confirmation from all the creditors were filed. There is also no dispute that the loan amounts were repaid by the assessee. It is also a matter of record that the loans were obtained through one middleman, i.e., Shri Naresh Kumar, who appeared and confirmed that all the loans were arranged by him. Though the assessee has surrendered the same just to buy peace, but it does not mean that if the amount of loan was surrendered, then penalty is also leviable. The Assessing Officer has to record the satisfaction that assessee has concealed the particulars of income. As no such satisfaction is recorded, therefore, the issue is squarely covered by the decision of the jurisdictional High Court in the case of CIT v. Ram Commercial Enterprises Ltd. .
Even on the merits, the finding of the Commissioner of Income-tax (Appeals) could not be controverted by the learned Departmental Representative that all the particulars of loans were disclosed while filing the return of income. Confirmations were filed and the loans were repaid also. The confirmations of the middleman was also filed, even his statement was also recorded whereby it was confirmed that all the loans were arranged by him."
6. Shri Rajesh Bindal, learned counsel for the appellant, made strenuous efforts to persuade us to hold that the Commissioner of Income-tax (Appeals) and the Tribunal committed an error in appreciating the evidence produced by the assessee on the issue of genuineness of cash credits. Learned counsel also tried to justify the imposition of penalty by the Assessing Officer by arguing that the assessee had failed to discharge the burden which lay upon it to prove the creditworthiness of the persons who had given the loans, but we have not felt persuaded to agree with him. Rather, we are convinced that no question of law, much less a substantial question of law, arises for determination in this appeal.
7. In CIT v. Ms. Monica Oswal , one of us (G.S. Singhvi J.) to whom the matter was referred on account of difference of opinion amongst the members of the Division Bench interpreted Section 260A of the Act and after adverting to the relevant statutory provisions and the judgments of the Supreme Court in Panchugopal Barua v. Umesh Chandra Goswami ; Ram Prasad Rajak v. Nand Kumar and Bros. ; Kondiba Dagadu Kadam v. Savitribai Sopan Gujar ; Hari Singh v. Kanhaiya Lal and Santosh Hazari v. Purushottam Tiwari , laid down the following propositions (page 338) :
"(a) An appeal under Section 260A of the Act cannot be entertained unless a substantial question of law arises for consideration by the High Court.
(b) To be substantial, a question of law must be debatable and must have a material bearing on the decision of the case and the rights of the parties. Where a question of law is fairly arguable or where there is a difference of opinion on the question of law, the same has to be treated as a substantial question of law.
(c) A point of law which admits of no two opinions may be a proposition of law but cannot be treated as a substantial question of law.
(d) If the question raised in the appeal is already settled by the highest court of the country or the jurisdictional High Court, then the same cannot be regarded as a substantial question of law. Similarly, if the general principles to be applied in determining the question are well settled and the only issue relates to application of those principles to the particular facts of the case, then no substantial question of law can be said to arise in the appeal.
(e) If the conclusions recorded by the Tribunal in the particular facts of the case are plausible, then it would not be a case of substantial question of law.
(f) The finding of fact recorded by the Assessing Officer or the first appellate authority or the Tribunal cannot be disturbed by the High Court in exercise of powers under Section 260A of the Act unless such finding is perverse or is such which no person of reasonable prudence could arrive at in the given facts of the case."
8. The facts of this case show that the assessee had filed affidavit of the middleman, namely, Naresh Kumar, and confirmation and affidavits of the creditors regarding the loan. In the affidavit filed by him on February 31, 1993 (sic), Naresh Kumar disclosed his acquaintance with Bhagwat Par-shad, one of the partners of the assessee as also the creditors, namely, Thakur Jagpal Singh and Badlu Ram, their business and anxiety to deposit the amount with the assessee. The creditors also filed their affidavits disclosing their source of income. The Commissioner of Income-tax (Appeals) held that the evidence produced by the assessee was sufficient to prove the genuineness of the cash credits. The Tribunal concurred with the reasons assigned by the Commissioner of Income-tax (Appeals) and held that the assessee by producing evidence in the form of affidavits of Naresh Kumar and two creditors has been able to prove the genuineness of the cash credits. In our opinion, the findings of the Commissioner of Income-tax (Appeals) and the Tribunal on the issue of source of income of the creditors, etc., are pure findings of fact which have been recorded on a correct appreciation of evidence. Therefore, the question of law framed by the appellant cannot be treated as a substantial question of law within the meaning of Section 260A of the Act.
9. In the result, the appeal is dismissed.