PATHAK C.J. - The following two questions of law have been referred to this court for decision by the Income-tax Appellate Tribunal, Gauhati Bench, under section 256(1) of the Income-tax Act, 1961, hereinafter referred to as "the Act" :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that penalty under section 271(1)(c) was leviable ?
(2) Whether, having fully deleted the additions on account of cash credits made in the reassessment proceedings, the Tribunal was right in holding that this was a clear case of concealment ?"
The facts of the case may be briefly stated as follows :
The assessee is a registered firm. The assessment years concerned are 1955-56 and 1956-57. For the assessment year 1955-56, the original assessment was made on March 31, 1956. Subsequently, assessment for the assessment year 1957-58 was made. Certain additions were made for that assessment year which were contested by the assessee on appeal before the Appellate Assistant Commissioner. The amount involved was Rs. 62,383 added to the trading accounts. The Appellate Assistant Commissioner found that there were large number of cash credits which appeared to be of found that there were large number of cash credits which appeared to be of suspicious nature. He also found discrepancies between the cash credits and the bank pass book and so he called upon the assessee to explain the nature and source of the cash credits and produce evidence in support thereof. The assessee failed to produce satisfactory evidence and the Appellate Assistant Commissioner issued an enhancement notice. The assessee by its letter dated November 11, 1958, stated that the cash deposit in question had actually been derived from the assessees own suppressed income and in this connection a suppression of income of Rs. 91,000 was admitted. It was claimed before the Appellate Assistant Commissioner that a part of these credits came out of suppressed profit of that year, that is, assessment year 1957-58, and the balance came out of the suppressed profits of the earlier years. The Appellate Assistant Commissioner accepted the plea of the assessee that these cash credits came partly out of suppressed profit of the assessment year 1957-58, but did not accept that they came partly out of the suppressed profits of the earlier years. The claim of the assessee was rejected as there was no evidence in support of its contention. The Appellate Assistant Commissioner found that the cash credit of Rs. 91,000 for the assessment year 1957-58 was derived from the suppressed profit of the assessment year 1957-58 only and he, therefore, enhanced the additions by Rs. 28,617 as against the addition of Rs. 72,383 made by the Income-tax Officer.
In view of the admission made by the assessee before the Appellate Assistant Commissioner in the course of the appeal proceedings for the assessment year 1957-58 that a part of the concealed income for the earlier years had been introduced as cash credits in the assessment year 1957-58, the Income-tax Officer satisfied himself that the assessee had concealed the profits of the assessment years 1955-56 and 1956-57 and proceeded to reopen the assessment in order to assess the cash credits appearing in those two years. In the assessment year 1955-56 the cash credit involved was Rs. 22,577. This was due from two parties, namely, Sriput Talukdar and Hemchandra Deka. The interest on these loans credited was Rs. 2,785. In response to the notice calling for returns the assessee filed return on December 1, 1964, for the assessment year 1955-56. It was urged before the Income-tax Officer that since the credits appearing in the books of the assessee for the assessment year 1957-58 had already been taxed, the credits appearing in the names of the same persons in the earlier years should be considered as covered by the additions made by the Appellate Assistant Commissioner for the assessment year 1957-58. The Income-tax Officer, however, did not accept this contention. So he added back the total credits amounting to Rs. 22,577 and also the interest amounting to Rs. 2,786. Penalty proceedings were also initiated for concealment of income.
The facts of the assessment year 1956-57 are similar to those of the assessment year 1955-56. As in the assessment year 1955-56, the Income-tax Officer, however, did not accept this contention. So he added back the total credits amounting to Rs. 22,577 and also the interest amounting to Rs. 2,786. Penalty proceedings were also initiated for concealment of income.
The facts of the assessment year 1956-57 are similar to those of the assessment year 1955-56. As in the assessment year 1955-56, the Income-tax Officer reopened the proceedings for the assessment year 1956-57 in order to include the cash credits which amounted to Rs. 27,000. These were Rs. 15,000 from Sripat Talukdar, Rs. 7,000 from the mother of Chatar Singh and Rs. 5,000 from Chandmal Baid. The assessee filed return in response to the notice under section 148 of the Act on December 1, 1964, and after hearing the assessee Rs. 27,000 was added to the income shown by the assessee. Penalty proceedings were intiated for concealment of income for this assessment year also.
The penalty proceedings initiated were referred to the Inspecting Assistant Commissioner was of the opinion that the assessee having admitted before the Appellate Assistant Commissioner that the cash credits represented income, the department was not required to do any further enquiry unless the assessee recanted the admission. He, therefore, held that the assessee had concealed income and imposed a penalty of Rs. 16,000 for the assessment year 1955-56 and Rs. 12,000 for the assessment year 1956-57.
The assessee then went in appeal before the Income-tax Appellate Tribunal against both the quantum as well as the penalties levied for the assessment year 1955-56 and 1956-57.
By a common judgment the Tribunal disposed of the quantum appeals as well as the appeals against the penalties for three assessment years, namely, 1955-56, 1956-57 and 1958-59.
Considering the quantum appeals for the assessment years 1955-56 and 1956-57, the Tribunal observed :
"Neither before the Income-tax Officer nor before us there has been any attempt to prove the genuineness of these credits and the assessee has merely relied on his basic argument that this amount was either covered by the addition made in 1957-58, or it should be taken to have come out of the suppressed profits in the trading accounts. This submission of the assessee that substantial additions in the trading account have been made from year to year and these credits have also appeared in various years and from this it could reasonably be inferred that these credits had a source in the trading profits of the assessee, has substantial force. The names in which these credits appeared again reappeared in 1957-58, and in respect of the credits in those names the assessee clearly admitted that they were credited out of the suppressed trading profits. Considering these circumstances we hold that the credits in these two years have come out of suppressed profits from the trading transaction of the assessee. The trading transactions have never been accepted and as stated above the additions made in these two years were much larger than these credits. The credits have also appeared in the middle or the later parts of the two years. Considering all the facts together we accept this plea of the assessee and we hold that, though these cash credits were not genuine, no further addition in respect of them have to be made in view of the substantial additions made in the trading accounts. to this extent the assessees suppressed trading profits have appeared in his books in the form of fictitious loans. In view of our above filing we direct that the addition of Rs. 22,577 in the assessment year 1955-56 and the addition of Rs. 27,000 in the assessment year 1956-57 should be deleted."
It is found from the above observations of the Tribunal in the quantum appeals that the addition of Rs. 22,577, which represented the cash credits for the assessment year 1955-56, and the addition of Rs. 27,000, which represented the cash credits for the assessment year 1956-57, were deleted by the Tribunal.
Thereafter, the Tribunal in its order took up the penalty appeals and the Tribunal posed the following question to itself :
"However, the question arises whether penalties could have been levied in these two years when the additions in respect of the cash credits have been deleted by us."
The Tribunal then observed :
"In the assessment proceedings the Income-tax Officer had taken the originally assessed figure and had added to it the cash credits as income from other source and had also disallowed interest on the loans which were not genuine. Now after the deletion of the cash credits the only additions which stand as a part of the assessees income are the amounts of interest claimed to have been paid to various parties which had been held to be non-genuine. However, we find that the assessee had concealed his income while filing his original returns by understanding the trading results and this satisfaction regarding concealment has taken place in the course of present proceedings when it was found that the assessee had introduced fictitious credits and has also claimed interest on such fictitious loans. The ordinary trading account additions made in the original assessments on the ground of understatement of income and various other defects have taken a tangible shape to the extent of cash credits which have been held to have come out of the suppressed trading profits."
In the instant case, the Inspecting Assistant Commissioner levied penalty on the basis that cash credits to the tune of Rs. 22,577 from different parties were shown in the assessment year 1955-56 and to the tune of Rs. 27,000 from different parties were shown in the assessment year 1956-57 and these were admitted by the assessee before the Appellate Assistant Commissioner to be its trading profits and on that basis the Inspecting Assistant Commissioner held that there was a case under section 271(1)(c) of the Act for concealment of income. But when these two items of cash credits were deleted by the Tribunal from the two relevant assessment years, there remained nothing on the foundation of which the penalty proceedings might be initiated or the penalty might be levied.
Mr. G. K. Talukdar, the learned standing counsel, finding this difficult position in the order of the Tribunal, tried to support the Tribunals order on the basis that even though the two items of cash credits were deleted, the two items of interest against loans which were admitted to be not genuine remained in the return and the penalty might be founded on these two items of interest. Technically the learned counsels submission may have some substance but after scrutinising the facts of the case carefully it is found that the penalties in both these assessment years were levied on the basis of concealment of the two items of cash credits. In the Inspecting Assistant Commissioners penalty order for the assessment year 1955-56, it has been observed as follows :
"The amount of concealed income is Rs. 22,577. The minimum penalty leviable works out to Rs. 4,142. Considering the facts of the case, I levy a penalty of Rs. 16,000."
Similarly, for the assessment year 1956-57, the Inspecting Assistant Commissioner has observed as follows :
"The amount of concealed income is Rs. 27,000. The minimum penalty leviable works out to Rs. 3,048. Considering the facts of the case, I levy a penalty of Rs. 12,000."
We find from the penalty orders passed by the Inspecting Assistant Commissioner that only the cash credit amounts in question were taken into consideration for the purpose of levying penalty on the assessee. When these two items were deleted from the assessment orders, then, in our opinion, the penalty proceedings cannot be sustained on the basis of those very two items. The question of interest, though has been discussed here and there, it did not form the basis of the penalty imposed. In that view, we hold that the penalties for both the assessment years cannot be sustained in law.
In the result, we find that on the facts and in the circumstances of the case the Tribunal was not right in holding that the penalty under section 271(1)(c) was leviable in the instant case.
Thus, we answer the first question of law in the negative and in favour of the assessee.
Regarding the second question, we find that if the additions are fully deleted then there cannot be a clear use of concealment for the purpose of section 271(1)(c) of the Act, as in the instant case. The second question has been framed on the basis that the additions on account of cash credits have been fully deleted and whether the Tribunal was right under those circumstances in holding that there was a clears case of concealment and that must be understood to be concealment for the purpose of penalty under section 271(1)(c) of the Act. To be a concealment under section 271(1) (c), the concealed income must remain in the assessment under in its final form, otherwise the penal provisions regarding concealment may not be attracted.
In the result, we also answer the second question of law in the negative and against the department.
The reference is accordingly disposed of. There will be no order as to costs.
N. IBOTOMBI SINGH J. - I agree.