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Jash Bhai F. Patel v. Commissioner Of Income-Tax, Amritsar-Ii.

Punjab & Haryana High Court

Jul 28, 1980

Judgment

Subsequent
References

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Structured Summary of the Legal Opinion (M.R. Sharma, J.)

Factual and Procedural Background

For the assessment year 1964-65 (accounting period ending 17 October 1963) the assessee-firm filed a return on 29 June 1964. The Income-tax Officer (ITO) noticed cash credits in the firm's books totaling Rs. 1,26,000 appearing in the names of six parties (listed in the record). The assessee produced confirmatory letters from those parties and the ITO initially accepted the items as genuine and completed the assessment on 15 January 1966 at a total income of Rs. 84,949.

Subsequently, the proprietor of one creditor, Shri Mohandas (of M/s. Mohandas Ghanshamdas), gave a statement on 22 March 1968 that the hundi loans alleged to have been advanced by his firm were bogus and that he had merely lent his name to enable others to bring unaccounted money into their accounts. Following that statement and further findings after certain raids (where other credits were surrendered), the ITO reopened the assessment on 6 April 1968 under section 147(a) of the Income-tax Act, 1961. The assessee filed the same figure (Rs. 84,949) and contended the loans were genuine, but the ITO added Rs. 76,359 (including Rs. 359 interest) as income from undisclosed sources.

On appeals: the first appellate authority (AAC) dismissed the assessee's appeal; the Tribunal in second appeal partly allowed the appeal, holding that cash credits of Rs. 20,000, Rs. 10,000 and Rs. 18,000 were genuine, while Rs. 15,000 and Rs. 13,000 were fictitious. Penalty proceedings under section 271(1)(c) were instituted; the IAC initially levied a penalty of Rs. 76,000. On appeal in penalty proceedings the Tribunal concluded that penalty was not leviable in respect of the Rs. 13,000 credit but was leviable in respect of the Rs. 15,000 credit given (among other things) the statements of Shri Mohandas and analogous authority.

Two references to the High Court followed (disposed together): I.T.R. No. 111 of 1975 (questions on validity of reopening under s.147(a) and genuineness of the Rs. 15,000 and Rs. 13,000 credits) and I.T.R. No. 115 of 1975 (whether the Tribunal was right in maintaining a penalty of Rs. 4,000 under s.271(1)(c)). The court answered the questions against the assessee and in favour of the revenue.

Legal Issues Presented

Whether the assessment had been validly reopened under section 147(a) of the Income-tax Act, 1961? (I.T.R. No. 111 of 1975)
Whether, on the facts and in the circumstances of the case, the assessee had failed to prove the genuineness of the cash credits amounting to Rs. 15,000 and Rs. 13,000 appearing in the names of M/s. Mohandas Ghanshamdas and M/s. Tola Singh Sohan Singh? (I.T.R. No. 111 of 1975)
Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in maintaining the penalty of Rs. 4,000 levied on the assessee under section 271(1)(c) of the Income-tax Act, 1961? (I.T.R. No. 115 of 1975)

Arguments of the Parties

Assessee's Arguments

The assessee-firm contended that the loans in question were genuine and that all material facts, including the names of the hundi dealers, had been disclosed in the original return; therefore, there was no justification to reopen the assessment under section 147(a).
On reassessment, the assessee again returned income of Rs. 84,949 and asserted the earlier assessment figure was correct.

Revenue / ITO's Position (as reflected in the opinion)

The ITO relied on the statement of Shri Mohandas (dated 22 March 1968) that the hundi loans were bogus and that he had lent only his name, together with information from raids and surrender of credits by parties, as grounds to reopen the assessment under section 147(a) and to make additions for undisclosed income.
The ITO rejected the assessee's assertions and made additions totaling Rs. 76,359 to the firm's income from undisclosed sources.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Kirpa Ram Ramp Dass v. ITO (Civil Writ No. 3671 of 1971 — reported in [1982] 135 ITR 68)	Authority on the validity of reopening an assessment under section 147(a); treated as concluding the reopening point against the assessee.	The court treated this Division Bench decision as dispositive on the reopening question and relied on it to hold that the assessment had been validly reopened under section 147(a).
Jawahar Woollen Textile Mills v. CIT, [1973] 92 ITR 510 (Punjab & Haryana High Court)	Upheld levy of penalty under section 271(1)(c) where a creditor (Shri Mohandas) repeatedly lent his name to enable traders to escape tax; used as an analogous instance supporting penalty.	The court cited this case as similar and as support for sustaining penalty in the present case in view of Shri Mohandas' statements that he lent his name and did not advance genuine loans.
Anwar Ali, [1970] 76 ITR 696 (Supreme Court)	Referenced as a contrasting authority where there was insufficient satisfactory material to prove concealment for penalty purposes.	The court contrasted Anwar Ali with the present facts, noting that unlike Anwar Ali, satisfactory material existed here (e.g., statements of the money-lender) to support penalty.
Hazi Mohd. Mir Ahmed v. CIT, [1977] 110 ITR 630 (P & H)	Cited for the proposition that where false entries in books are found and there is additional evidence (such as admission by a money-lender), penalty can legitimately be imposed under section 271(1)(c).	The court relied on this authority to support the conclusion that, given false entries and corroborating evidence from the money-lender, penalty could be imposed on the assessee-firm.

Court's Reasoning and Analysis

The court's analysis proceeded in two principal strands corresponding to the referenced questions:

Validity of reopening (s.147(a)):
- The court observed that the point raised by the assessee — that the names of the hundi dealers were disclosed in the original return and therefore reopening was unjustified — had already been concluded against the assessee by a Division Bench decision in Kirpa Ram Ramp Dass v. ITO. The opinion explicitly relies on that authority to answer the reopening question against the assessee, concluding that the reopening under section 147(a) was valid.
Genuineness of the cash credits and penalty liability:
- On the genuineness of the Rs. 15,000 and Rs. 13,000 credits, the court accepted the Tribunal's approach that the proprietor (Shri Mohandas) had made a clear statement (22 March 1968) and a later letter (14 March 1970) admitting that the hundi business carried on in his name was fictitious and that he lent only his name. The court held it was open to the Tribunal to act on such statements and infer failure by the assessee to prove genuineness of those credits.
- Concerning penalty, the court reasoned that once it was found that false entries were made in the assessee's books and there was the corroborative evidence of the money-lender's admissions, it was open to the Tribunal to conclude that the assessee had deliberately concealed income and to impose penalty under section 271(1)(c). The court referenced Hazi Mohd. Mir Ahmed and the Jawahar Woollen Textile Mills decision as supporting authorities and contrasted Anwar Ali (where satisfactory material to prove concealment was absent).

The court therefore answered the questions in the references in the affirmative against the assessee and in favour of the revenue, applying the cited precedents and the direct admissions of the money-lender as decisive evidence permitting both reassessment and penalty.

Holding and Implications

Holding:
All questions of law referred in I.T.R. No. 111 of 1975 and I.T.R. No. 115 of 1975 are answered in the affirmative — against the assessee-firm and in favour of the revenue.

Direct implications:

The reopening of the assessment under section 147(a) was held to be valid.
The court upheld the Tribunal's conclusion that, given the statements of Shri Mohandas and the demonstrated false entries, the assessee failed to prove the genuineness of the disputed cash credits (as posed in the reference) and the additions made on reassessment are sustained by the reasoning in the opinion.
The Tribunal's maintenance of penalty (the question referred concerned a penalty of Rs. 4,000 under section 271(1)(c)) was also upheld — the court found penalty was leviable in the circumstances described.

Broader precedent and costs:
The court relied on existing authorities (as listed above) in reaching its conclusions; the opinion does not assert that it establishes a new precedent beyond its application of those authorities. The court ordered that there be no costs.

Note: This summary is strictly limited to and derived from the facts, findings, and citations contained in the provided opinion text. No additional facts or inferences beyond that text have been introduced.

Show all summary ...

M.R Sharma, J.:— For the assessment year 1964-65, relevant to the accounting period ending on October 17, 1963, the assessee-firm filed the return of income on June 29, 1964. In the course of the assessment proceedings, the ITO noticed the following cash credits in the account books of the assessee.

S. No. Name of the party Amount Rs. 1. M/s. Mohandas Ghanshamdas, Majith Mandi, Amritsar 15,000 2. M/s. Brijlal Narinder Kumar, Tunda Talab, Amritsar 20,000

3. M/s. Tola Singh Sohan Singh, Majith Mandi, Amritsar 13,000 4. M/s. Chopra Trading Co., Majith Mandi, Amritsar 18,000 5. M/s. Avtar Singh & Bros., Majith Mandi, Amritsar 10,000 6. M/s. United Trading Co., Majith Mandi, Amritsar 50,000 Total 1,26,000

2. The assessee produced the confirmatory letters from the parties concerned to prove the genuineness of these cash credits. The ITO accepted these items as genuine and completed the assessment on January 15, 1966, on a total income of Rs. 84,949. Later on, Shri Mohandas, proprietor of M/s. Mohandas Ghanshamdas, gave a statement on March 22, 1968, before Shri J.S Gill, ITO, District II(IX), Amritsar, to the effect that all the loans in the name of M/s. Mohandas Ghanshamdas were bogus. His statement reads as under:

“The entire hundi business done by me under the name of M/s Mohandas Ghanshamdas since its inception up to the assessment year 1967-68, when I ceased to do the business, was completely bogus. None of the hundi loans that may appear in any party's account and claimed by him as advanced by me under the name, M/s. Mohandas Ghanshamdas, was genuine. No loan was advanced in airy instance. Only I lent my name (M/s. Mohandas Ghanshamdas) to be used by the parties concerned for bringing into their accounts their own secretive and unaccounted money in the guise of hundi loans taken from me (M/s. Mohandas Ghanshamdas).”

3. Thereafter, the ITO also found that consequent upon certain raids, certain credits in the names of certain other firms had also been surrendered by various parties. He, therefore, reopened the assessment in the present case on April 6, 1968, under s. 147(a) of the I.T Act, 1961 (hereinafter called “the Act”). The notice served upon the assessee-firm contained the details of the grounds on the basis of which the assessment had been reopened.

4. The assessee-firm appeared before the ITO and submitted a return of Rs. 84,949, i.e, the figure at which the assessment has earlier been framed. The assessee-firm asserted that the loans in question were genuine and that all the material facts had been disclosed by it to the ITO and that there was no justification for the reopening of the assessment under s. 147(a) of the Act. The ITO rejected these assertions and on the merits of the case added a sum of Rs. 76,359 (including Rs. 359 as interest) to the income of the assessee-firm from undisclosed sources.

5. The assessee-firm went up in appeal before the AAC, which was dismissed. The assessee-firm went up in second appeal which was partly allowed and it was held by the Tribunal:

“1. That the assessee had not disclosed in its original return all material facts fully and truly necessary for its assessment within the meaning of section 147(a) read with Explanation 2 thereto and as such the Income-tax Officer was competent to reopen the assessment under the aforesaid provision of law.

2. That the cash credits amounting to Rs. 20,000, Rs. 10,000 and Rs. 18,000 appearing in the names of M/s. Brij Lal Narinder Kumar, M/s. Avtar Singh and Bros and M/s. Chopra Trading Co. were genuine and as such the addition of Rs. 48,000 could not be made to the income of the assessee, as income from undisclosed sources.

3. That the cash credits amounting to Rs. 15,000 and Rs. 13,000 appearing in the names of M/s. Mohandas Ghanshamdas and M/s. Tola Singh Sohan Singh were fictitious.”

6. Since the assessee-firm was found to have concealed its income and to have given inaccurate particulars thereof, penalty proceedings were also initiated against it. At the relevant time, the minimum penalty impos-able exceeded Rs. 1,000 and for that reason the ITO referred the case to the IAC under s. 274(2) of the Act. In due course of time, a penalty of Rs. 76,000 was levied by the IAC on the assessee-firm under s. 271(1)(c) of the Act.

7. The assessee-firm filed an appeal against this order also. The appellate Tribunal observed as follows:

“It is obvious from the aforesaid order of the Tribunal that the genuineness of the cash credits of Rs. 13,000 appearing in the name of M/s. Tola Singh Sohan Singh was not accepted because the assessee could not produce any satisfactory evidence to substantiate its contention. The explanation of the assessee was rejected by the Tribunal for want of evidence. This fact alone is not, in our opinion, sufficient to justify the levy of penalty. The addition of Rs. 13,000 having been made to the income of the assessee merely by rejecting its explanation, it cannot be said that the assessee concealed its income within the meaning of section 271(1)(c). We are, therefore, of the view that penalty is not leviable in respect of this cash credit of Rs. 13,000.”

8. The position as regards the cash credit of Rs. 15,000 appearing in the name of M/s. Mohandas Ghanshamdas is, however, different. As observed by the Tribunal in the quantum appeal, Shri Mohandas not only stated in his statement dated March 22, 1968, before Shri J.S Gill, ITO, that the entire hundi business carried on by him was fictitious, but also confirmed this position in the letter dated March 14, 1970, sent by him to the ITO in the reassessment proceedings. In the face of the statement dated March 22, 1968, and the letter dated March 14, 1970, of Shri Mohandas, there was, as observed by the Tribunal in the quantum proceedings, no scope for doubt about the fictitious nature of this cash credit. This cash credit cannot, therefore, be considered to be at par with the other cash credits in the matter of levy of penalty. In somewhat similar circumstances, the Punjab & Haryana High Court upheld the levy of penalty under s. 271(1)(c) in the case of Jawahar Woollen Textile Mills v. CIT, [1973] 92 ITR 510. In that case, the same creditor, i.e, Shri Mohandas, had given two statements on December 29, 1966, and January 15, 1966, in two independent income-tax cases to the effect that he was not carrying on the business of money-lending but was merely lending his name as a creditor on payment of 3% commission. However, in the proceedings before the ITO against M/s. Jawahar Woollen and Textile Mills, he confirmed to have advanced the loans to them. He could not, however, produce the account books in support of his statement before the ITO. Taking into consideration the statements of Shri Mohandas recorded on December 21, 1965, and January 15, 1966, and also his statement in the assessment proceedings, the department levied a penalty of Rs. 27,937 on the assessee and the High Court upheld the same. While upholding this penalty, the High Court observed that the conduct of the so-called creditor, Shri Mohandas, was that he was lending his name to different traders as a creditor in order to enable them to escape liability to income-tax and that there was, unlike in the case of Anwar Ali, [1970] 76 ITR 696 (SC), satisfactory material on record to prove the concealment of income. The present case is on stronger footing, because whereas Shri Mohandas had supported the claim of M/s. Jawahar Woollen & Textile Mills in the assessment proceedings, he has not at all appeared before the ITO and supported the case of the present assessee.

9. In other words, the Appellate Tribunal concluded that penalty was leviable on the assessee-firm for having concealed its income to the extent of Rs. 15,000.

10. On the application made by the assessee-firm, two separate references have been made in two cases. The findings arrived at in the appeal about the quantum of income-tax are the subject-matter of reference in I.T.R No. 111 of 1975. In this reference, the following two questions of law have been referred to us for our opinion:

“1. Whether the Tribunal was right in law in holding that the assessment had been validly reopened under section 147(a) of the Income-tax Act, 1961?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had failed to prove the genuineness of the cash credits amounting to Rs. 15,000 and Rs. 13,000 appearing in the names of M/s. Mohandas Ghanshamdas and M/s. Tola Singh Sohan Singh?”

11. The findings arrived at in the appeal relating to penalty proceedings are the subject-matter of decision in I.T.R No. 115 of 1975. In this reference, the following question of law has been referred to us for our opinion:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in maintaining the penalty of Rs. 4,000 levied on the assessee under section 271(1)(c) of the Income-tax Act, 1961?”

12. Since the two references arise between the same parties and involve common questions of law and fact, they are being disposed of by one judgment.

13. In the reference wherein the quantum of tax imposed has been challenged, the only point raised by the learned counsel for the assessee-firm is that the names of the hundi dealers having been given by the assessee-firm in the original return there was no justification on the part of the ITO to reopen the assessment under s. 147(a) of the Act. However, the decision on this point stands concluded against the assessee-firm by a Division Bench judgment of this court in Kirpa Ram Ramp Dass v. ITO (Civil Writ No. 3671 of 1971 decided on November 20, 1979—since reported in [1982] 135 ITR 68.)

14. As far as the second point is concerned, since the proprietor of the money-lending concern himself made a statement that the loans alleged to have been advanced by his firm to various concerns were all bogus, it was open to the Tribunal below to act on such a statement and to infer that the assessee-firm failed to prove the genuineness of the cash credits of the impugned amounts. We, therefore, answer the two questions of law referred to us in I.T.R No. 111 of 1975 in the affirmative, i.e, against the assessee-firm and in favour of the revenue. Once a finding is arrived at that the assessee-firm made false entries in its books of account and there was the additional evidence of the money-lending dealer to the effect that he had been indulging in name-lending only, it was open to the Tribunal below to come to the conclusion that the assessee-firm had indulged in a deliberate concealment of income and to impose penalty on it. [See in this connection (Hazi Mohd. Mir Ahmed v. CIT, [1977] 110 ITR 630 (P & H)). The question of law referred to us in I.T.R No. 115 of 1975 is also answered in the affirmative, i.e, against the assessee and in favour of the revenue.

15. No costs.