JUDGMENT
1. This reference under [SECTION] of the [ACT], at the instance of M/s. Northern Bengal Jute Trading Co. Ltd., Calcutta, the assesses.
relates to the assessment year 1947-48, for which the relevant previous year ended on the 30th June, 1946. The facts found by and/or admitted before the Tribunal are shortly as follows :
2. The assessee carried on business as a dealer in jute. In the course of the assessment of the assessee for the assessment year 1948-49, the ITO, on scrutiny of the accounts of the subsequent year, found diverse cash credit entries on diverse dates aggregating to Rs. 1,40,000 in the names of several persons who were petty employees of the assessee and treated the same as the income of the assessee from undisclosed sources. There were appeals by the assessee and ultimately the Tribunal directed the ITO to exclude the said amounts from assessment for the said assessment year and to assess the same, according to law, in the earlier assessment year 1947-48. Accordingly, the assessment for the assessment year 1947-48 was reopened under [SECTION] of the [ACT]. The assessee's explanation was that the said amounts were in fact advanced by M/s. [ENTITY], although the same were entered in its books in the names of the said employees and in support thereof the assessee relied on a confirmation furnished by M/s. [ENTITY] to the effect that out of a fund of about Rs. 16,000 lying idle with them in cash as admitted before the Income-tax Investigation Commission, the said sum of Rs. 1,40,000 had been advanced to the assessee. The ITO did not accept the said explanation of the assessee and added back the same to the income of the assessee as income from undisclosed sources. Such addition was confirmed both by the AAC and the Tribunal on successive appeals by the assessee.
3. The ITO being of the opinion that the assessee had concealed the particulars of its income or had deliberately furnished inaccurate particulars thereof, initiated proceedings against the assessee under [SECTION] of the [ACT], and issued notice to the assessee under [SECTION] of the Act.
4. In reply to the said notice the assessee by a letter dated the 27th January, 1960, contended, inter alia, that it had already furnished accurate particulars of the said transactions and that there was no concealment or furnishing of inaccurate particulars of any income. It was further contended that the said amount, although credited in various names, was received from M/s. [ENTITY] and as the entries in respect thereof were maintained in the Pakistan books, in any event, the same would not be income within the taxable territories, i.e., in India. The ITO held that the assessee was aware that false entries were being made on various dates in the names of innocent persons who were probably unaware of the same. This amounted to misrepresentation and led to a wilful concealment of particulars of income. Accordingly, with the previous approval of the I AC, the ITO levied a penalty of Rs. 61,250.
5. The assessee appealed to the AAC against the said penalty levied. It was contended on behalf of the assessee that the absence of satisfactory explanation regarding the source of the credits-would not warrant an automatic imposition of penalty. Further evidence and materials were necessary in order to justify the imposition of penalty and in the absence of the same no penalty could be imposed. The AAC held that entries of the deposits in the names of petty employees of the assessee and other evidence and materials on record conclusively proved that the assessee deliberately furnished inaccurate particulars of income and had not returned the correct income. He, therefore, confirmed the imposition of penalty.
6. The assessee preferred a further appeal before the I.T. Appellate Tribunal and contended that the revenue had failed to establish that the sum of Rs. 1,40,000 was the income of the assessee from undisclosed sources and no penalty could, therefore, be levied. The Tribunal noted that the said addition had been confirmed in a reference before this court, inter alia, on the ground that the contents of the confirmation given by M/s. Suraj-mal Nagarmal were not proved, nor did the assessee prove that it received the said sum from M/s. [ENTITY] and further the entries were made in the names of petty employees of the assessee.
7. The Tribunal found that when the assessee was caught by the ITO in its assessment proceeding and was found that the employees in whose names the credit entries were made could not advance such a huge amount to the assessee, it sought to explain the sums as amounts received from M/s. [ENTITY], although initially no such case was made out and documents had been executed by the assessee recording that the alleged loans were taken by the assessee from the said employees. The Tribunal held that the entries made by the assessee in its account books clearly established that the assessee had knowingly furnished inaccurate particulars of its income, and confirmed the order of the AAC.
8. At the instance of the assessee, this court directed the Tribunal to submit a statement of the case and to refer the following question as a question of law arising out of the order of the Tribunal :
Whether, on the facts and in the circumstances of the case, the imposition of Penalty under [SECTION] was lawful or justified ?"
9. Mr. [ENTITY], learned counsel for the assessee, contended before us that the authorities below and the Tribunal proceeded solely on the basis of the facts and materials found in the assessment proceedings in levying and sustaining the penalty. No further facts were found or reasons were given for the levy of the said penalty or for sustaining the same. It was further submitted that the Tribunal completely misconstrued and misunderstood the letter dated 27th January, 1960, written by the assessee in reply to the notice under [SECTION] of the Act. By the said letter the asses-see never pleaded ignorance nor could there be any inference that the asses-see had not come with clean hands. In the said letter, the assessee did not allege that the said sum of Rs. 1,40,000 would not find a place in the account books of M/s. [ENTITY] maintained in Pakistan nor did the assessee make out a case for the first time before the Tribunal that the said sum was entered in the books of account in Pakistan. Mr. [ENTITY] contended that at the very first opportunity in the proceedings before the ITO, the assessee truthfully disclosed that the amount of the said cash credit entries had been advanced by [ENTITY] and the entries in respect thereof were made in the names of employees of the assessee as desired by [ENTITY] and submitted the confirmation of the said advance made by [ENTITY]. Mr. [ENTITY] submitted that there was no concealment or furnishing of inaccurate particulars by the assessee at any stage commencing from the assessment proceedings before the ITO. He further submitted that penalty could not be levied nor could it be sustained without a finding of other facts or other reasons than those found or given in the. assessment proceedings.
10. In support of his contentions, Mr. [ENTITY] relied on the following decisions which are dealt with seriatim :
11. Northern Bengal Jute Trading Co. Ltd. v. CIT [1968] 70 [ACT] 407 (Cal). This relates to the reference taken by the assessee to this court in respect of the assessment for the year in the instant reference in which the present penalty had been imposed. This court considered all the facts and circumstances as found by the Tribunal and came to the conclusion that the assessee's onus to prove the source of the said cash credit entries remained undischarged and it was impossible to say that there was no evidence which would support the Tribunal's conclusion or that the conclusions arrived at by the Tribunal were perverse. This court answered the questions referred in the affirmative and against the assessee whereby the addition of the said sum of Rs. 1,40,000 as income of the assessee from undisclosed sources stood confirmed.
12. CIT v. [ENTITY] & Sons . This was an appeal by the revenue against an order of the High Court of Mysore rejecting its application under [SECTION] of the Act for directing the Tribunal nal to refer the following question of law to the High Court:
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty of Rs. 35,000 levied under [SECTION] of the [ACT] ?"
13. The Supreme Court relied on its decision in CIT v. [ENTITY] [1970] 76 [ACT] 696 and laid down as under (p. 376 of 83 [ACT]) :
"Apart from the falsity of the explanation given by the assessee, thedepartment must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt the original assessment proceeding for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment."
14. And after considering the orders passed by the ITO and the AAC, the Supreme Court observed as follows (p. 377):
"That clearly shows that except the reasons given in the original assessment order for including the disputed items in the total income, the department had no other material or evidence from which it could be reasonably inferred that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars"
15. [PRECEDENT] .
16. Here, the assessee claimed cash credits aggregating to Rs. 3,10,000 as loans from several creditors on hundis. The assessee having failed to establish the genuineness of the said credits, the ITO added the same as the income of the assessee from undisclosed sources. A sum of Rs. 28,482 for the alleged payment of interest on the said loan was also disallowed. The ITO initiated proceedings for the levy of penalty under [SECTION] of the [ACT], and referred the matter to the IAC before whom the assessee reiterated that the amount represented loans and that some of the borrowings were by cheques and the discharged hundis were produced. The IAC rejected the assessee's contentions and, referring to certain confessions made by some of those creditors before their respective ITOs assessing them, held that the assessee had concealed particulars of its income to the extent of the said loans and the alleged interest thereon and levied a penalty of Rs. 78,468 under [SECTION] of the [ACT]. The assessee's appeal against the assessment before the AAC failed. The assessee appealed to the Tribunal against both the assessment and the levy of penalty. The Tribunal confirmed the assessment but allowed the appeal of the assessee against the imposition of penalty. Against the order of the Tribunal setting aside the levy of penalty, the revenue came up in reference to this court. A Division Bench of this court, relying on the case of [ENTITY] and CIT v. Satish Churn Law [1969] 71 [ACT] 275 (Cal), upheld the order of the Tribunal and observed as under (p. 690 of 106 [ACT]):
"Apart from failure of the assessee to prove the source of the sum, there was no other evidence to show that there was any concealment on the part of the assessee These confessions had been made in the proceedings where the assessee was not a party and where the assessee had no opportunity to cross-examine those parties In these circumstances, it cannot be said that it has been proved that there was any concealment by the assessee."
17. [PRECEDENT] . Here, the assessee had filed a return showing an income of Rs. 1,490. In the assessment proceedings, the ITO found diverse cash credit entries in the accounts of the assessee and a total sum of Rs. 40,000 was shown as outstanding from five persons, which were stated to be loans taken against hundis. The ITO called upon the assessee to prove the said cash credits and also served notices under [SECTION] of the [ACT], on the alleged creditors. Only two of them appeared and gave evidence. The ITO did not accept that they were money-lenders and held that they were merely name-lenders. The said sum of Rs. 40,000 was added as the income of the assessee from undisclosed sources. Penalty proceedings under [SECTION] of the [ACT], were initiated by the ITO which was concluded by the IAC on the basis that there was a notorious hundi racket in existence and there was no satisfactory evidence to show that the creditors were actually in a position to advance any money and the sums alleged to have been borrowed were concealed income of the assessee and imposed a penalty of Rs. 11,000. In appeal against the assessment, the Tribunal confirmed the addition. But in the appeal against the imposition of penalty the Tribunal set aside the same. There was a reference by the Revenue to this court against the said order of the Tribunal, inter alia, setting aside the imposition of penalty and the following question was referred to this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal having upheld the addition of Rs. 40,000 as the assessee's income from undisclosed sources in the assessment appeal, was justified in holding that the imposition of penalty in respect of the above addition could not be sustained on the ground that the department had not proved that the assessee had concealed particulars of its income or deliberately furnished inaccurate particulars of its income ?"
18. The said reference was heard by a Division Bench and, following the decisions of the Supreme Court in [ENTITY] and [ENTITY] & Sons , the said question was answered in the affirmative and in favour of the assessee.
19. Mr. [ENTITY], the learned counsel for the revenue, contended that the question referred being purely a question of fact and not one of law, the reference was not maintainable.
20. He further contended that in the instant case there was neither any necessity nor any occasion for any further finding or of giving any further reasons for the levying, or for sustaining the levy, of penalty. In the penalty proceedings from the stage of the ITO and up to the Tribunal, the admitted position was that the assessee had deliberately furnished inaccurate particulars of its income in that the cash credit entries were shown in the books of the assessee in the names of the employees of the assessee and when the same was detected by the ITO the assessee sought to explain the same by alleging that although the entries were made in the names of its employees the amounts were in fact advanced by [ENTITY] and the entries were so made at the instance of [ENTITY]. Apart from a mere confirmation of the alleged credits there was no evidence that the said amount was advanced to the assessee by [ENTITY]. There was no evidence that the said entries were made in the names of the employees of the assessee at the instance or direction of [ENTITY]. Even assuming that the case of the assessee was true there was no escape from the fact that the assessee deliberately furnished inaccurate particulars of the said cash credits by making false entries in its books of account, in the names of its employees. The said amount has been added in the assessment as income of the assessee from undisclosed sources. Thus, the net result was that the assessee deliberately furnished inaccurate particulars of its income by showing the same as loans from its employees. Thus, there was concealment of income by the assessee.
21. In support of his contentions, Mr. [ENTITY] cited the following decisions :
22. [PRECEDENT] .
23. Here, the Tribunal having refused to refer to the High Court the question asked for by the revenue under [SECTION] of the [ACT], the revenue made an application before the High Court under [SECTION] of the said Act for referring the same which was also refused. The said question was as under :
"Whether, on the facts and in the circumstances of the case and on a true appreciation of the material on record, was the Appellate Tribunal justified in coming to the conclusion that the department did not prove the concealment of income in respect of the following additions, viz., (1) inflation of purchases transaction in the name of [ENTITY], Rs. 21,500, (2) speculation loss in the names of seven persons, Rs. 26,789?"'
24. The revenue went up before the Supreme Court and the Supreme Court observed as follows (p. 500):
"In our judgment the question raised was purely one of fact. On the materials and in the circumstances of the case, if the Tribunal reached the conclusion that it did, that there was no suppression of sales on the facts disclosed, no case could be referred to the High Court under [SECTION] seeking to upset that conclusion. We do not think that any question of law arose which would justify the Tribunal in making a reference under [SECTION] to the High Court for calling for a statement of case from the Tribunal on that question."
25. [PRECEDENT] . Here, the Tribunal having refused under [SECTION] of the [ACT], to refer the questions asked for by the revenue, it made an application before this court under [SECTION] of the said Act on which the rule was issued. At the final hearing, the said rule was discharged and the said application was dismissed without giving any reasons. The Commissioner went up before the Supreme Court. The relevant questions were as under (p. 546):
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in placing upon the department the onus to prove by positive evidence that the sum of Rs. 40,05,825 represented concealed income of the assessee when the assessee itself had conceded that the said sum was its income ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in treating the sum of Rs. 40,05,825 on the same footing as the sum of Rs. 14,30,561 and in setting aside, on that view, the penalty order passed in this case ?
3. Whether, in any event, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the said order of penalty ?"
26. The Supreme Court observed as follows (p. 547 of 103 [ACT]):
"Whether or not an assessee has concealed its income is a question to be decided on the facts of a case, and in the present case the decision is based on the respondent's agreement with [ENTITY], which the Tribunal accepted as true. That being so, no question of law really arises from the order of the Tribunal and the order dismissing the application tinder [SECTION] cannot be said to be wrong. "
27. In our opinion, the contention of Mr. [ENTITY] that the question referred is a question of fact and not a question of law is not without substance. In [ENTITY] & Sons case the Supreme Court found that the order of the ITO levying the penalty categorically stated that the reasons for adding the disputed amounts in the total income of the assessee had been already discussed in the original order of assessment and that they need not be repeated again. That was the only basis for the levy of penalty in that case. The Supreme Court also found that the AAC made a further guess that there were very many dry areas bordering Mysore and the assessee could have surreptitiously sold the alcohol, supplied to it without using it for the purpose of making tincture. But the Appellate Tribunal followed a correct and 'judicial approach in considering the question whether the penalty provisions were attracted against the assessee and after a very fair and full consideration of the' material circumstances set aside the order levying penalty. The facts and circumstances in the instant case are materially different from those in [ENTITY]'s case or [ENTITY]'s case . Here, it was not a mere rejection or disbelief of the explanation given by the assessee as to the nature and source of the cash credit entries. Here, the assessee's own case was that the particulars as disclosed by those entries were false and fictitious. The assessee sought to explain the said cash credit entries only after the same were found out by the ITO as pointed out by the Tribunal. The said entries were also sought to be supported by a document showing that the alleged loans were taken from such employees. We accept the contention of Mr. [ENTITY] that the assessee deliberately furnished inaccurate particulars of its income and concealed the same by trying to pass the same off as loans. This brings the present case squarely within the provisions of [SECTION] of the Act and satisfies all the conditions laid down therein, and there is no scope for bringing in further facts or materials to impose and sustain the penalty.
28. For the reasons as stated above, we answer the question referred in the affirmative and in favour of the revenue. There will be no order as to costs.