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  • S.J Kathawalla, JJ.
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Smart Summary

Judgment Summary — Income-tax references concerning assessment years 1966-67 and 1967-68

Factual and Procedural Background

This matter arises from references made by the Income-tax Appellate Tribunal, Mumbai, concerning whether penalty under section 271(1)(c) of the Income-tax Act, 1961, was leviable for assessment years 1966-67 and 1967-68. The Tribunal referred multiple questions to this Court following its own decision in appeals concerning reassessments and penalty orders.

For assessment year 1966-67: the assessee filed a return showing nil income (filed 25 July 1970). An original assessment completed on 23 July 1971 included Rs. 2,90,500 as undisclosed income on the ground of bogus loans from five parties. That original assessment was set aside on 4 March 1972 and reassessment steps were taken much later. In 1981 the Revenue asked the assessee to produce details; four of five lenders were produced and satisfied the Income-tax Officer; one (M/s Ramgopal Laxminarayan) could not be served and a Rs. 50,000 addition was made in a 1982 order. Penalty proceedings were initiated in mid-1985 and the Assessing Officer levied a penalty of Rs. 50,000 under section 271(1)(c). The Commissioner of Income-tax (Appeals) cancelled the penalty, but the Appellate Tribunal reversed that cancellation and confirmed the penalty, prompting the reference to this Court.

For assessment year 1967-68: the original assessment (30 March 1972) determined income at Rs. 37,47,450; an appellate order set aside certain cash-credit additions and directed a fresh opportunity. A letter dated 12 August 1981 asked the assessee to produce supporting evidence; three parties were involved in additions originally amounting to Rs. 1,25,000, reduced by the Tribunal to Rs. 75,000. Reassessment still left the assessee with a final loss figure. Penalty proceedings followed in the same pattern as for 1966-67, and the Tribunal again confirmed the imposition of penalty, producing the reference questions.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, penalty is leviable under section 271(1)(c) of the Income-tax Act, 1961 (assessment years 1966-67 and 1967-68)?
  2. Whether, on the facts and in the circumstances of the case, the Tribunal has rightly rejected the contention of the assessee in law that after lapse of 17 years the assessee could not produce the depositor and accordingly no penalty should have been levied? (assessment years 1966-67 and 1967-68)
  3. Whether, on the facts and the circumstances of the case, when the income assessed under section 68 of the Act, penalty under section 271(1)(c) can be levied in law? (assessment years 1966-67 and 1967-68)
  4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the penalty by relying upon the alleged statement made by the depositor in some other proceedings before some other officers? (assessment years 1966-67 and 1967-68)
  5. (Assessment year 1967-68 only) Whether the Explanation to section 271(1)(c) of the Act was applicable to the assessment year 1967-68?

Arguments of the Parties

Assessee's Arguments (as presented through Mr. Mehta)

  • The assessee never at any stage admitted concealment of income; amounts were added as income from undisclosed sources under section 68, but that admission-of-concealment element was absent.
  • Cited precedent (Commissioner of Income-Tax, Poona v. Bhimji Bhanjee & Co.) to show that in absence of admission of concealment, penalty under section 271(1)(c) is not sustainable.
  • Relied on Punjab & Haryana High Court judgment in CIT v. Prithipal Singh & Co. that the word "income" for purposes of clauses in section 271(1) refers to positive income only, and that penalty cannot be levied where the assessee is ultimately assessed at a loss.
  • Asserted that penalty proceedings were initiated after an inordinate delay (approximately 14–16 years), and cited cases (Mohd. Atiq v. ITO; P. Krishna Bhatta v. Agrl. ITO; K.P. Narayanappa Setty & Co. v. CIT) for the proposition that penalties should be imposed within a reasonable time and are invalid if imposed after long unexplained delay.
  • Contended that the assessee was not given an opportunity to confront or cross-examine depositors who allegedly made statements in other proceedings; reliance on such statements by the Tribunal was improper.

Revenue's Arguments

  • The Revenue contended that the assessee had, in effect, admitted concealment such that the burden shifted to the assessee to disprove concealment; hence penalty under section 271(1)(c) was maintainable.
  • The Revenue relied on Western Automobiles (India) v. Commissioner Of Income-Tax, Bombay City-I, Bombay ([1978] 112 ITR 1048 (Bom)) to support its stance that the circumstances justified penalty.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commissioner Of Income-Tax, Poona v. Bhimji Bhanjee & Co. [1984] 146 ITR 145 Where an assessee has not admitted concealment of income, imposition of penalty under section 271(1)(c) is not sustainable merely because an amount was brought to tax; burden on Revenue to demonstrate concealment or there must be an admission. The Court held this ratio "squarely applies" to the present facts (assessee never admitted concealment) and used it as a principal basis for concluding that penalty ought not to have been levied under section 271(1)(c).
Western Automobiles (India) v. Commissioner Of Income-Tax, Bombay City-I, Bombay [1978] 112 ITR 1048 (Bom) Authority relied on by Revenue for the proposition that when books disclose loans and assessee accepts addition, penalty may be sustainable depending on facts. The Court distinguished Western Automobiles, noting that in that case the assessee had accepted the addition as concealed business income; the present assessee did not admit concealment and the addition was under section 68 as income from undisclosed sources. Accordingly Western Automobiles was held not to apply.
CIT v. Prithipal Singh & Co. [1990] 183 ITR 69 (Punjab & Haryana HC); SLP dismissed [2001] 249 ITR 670 (SC) Holds that the word "income" in relevant penalties refers to positive income only; penalty under section 271(1)(c) (and Explanation) is not attracted where assessee is finally assessed at a loss. The Court applied this principle to the 1967-68 assessment (where final assessment was at a loss) and accepted that no penalty could be levied against an assessee finally assessed at a loss; it also observed that the Supreme Court had declined to interfere with this decision.
Mohd. Atiq v. ITO [1962] 46 ITR 452 (All) Authority indicating that penalties, though not time-barred by statute, ought to be imposed within a reasonable time; long unexplained delays may invalidate penalty proceedings. Cited by the assessee to support the contention that penalty levied after long delay (14–16 years) without valid explanation is invalid; the Court considered delay as part of its reasoning that the assessee could not reasonably produce aged records or witnesses.
P. Krishna Bhatta v. Agrl. ITO [1981] 132 ITR 21 (Ker) Similar proposition that penalty should be imposed within a reasonable time and long delays can render penalty invalid absent explanation. Relied on by the assessee and considered by the Court in assessing the impact of delay and the practical impossibility of producing aged evidence after many years.
K.P. Narayanappa Setty & Co. v. CIT [1975] 100 ITR 17 (AP) Holds that inordinate delay in initiating penalty proceedings can render them invalid; the question of reasonableness of delay is relevant. Referred to by the assessee; the Court noted the authorities when evaluating the reasonableness of the delay between original assessment, setting aside, reassessment and initiation of penalty proceedings.

Court's Reasoning and Analysis

The Court proceeded incrementally and applied the legal principles from the relevant precedents to the facts before it:

  1. Nature of the additions and admission: The Court observed that the additions for both years were made under section 68 (income from undisclosed sources) and that the assessee never admitted that such amounts were concealed income. Applying the ratio from Commissioner of Income-Tax, Poona v. Bhimji Bhanjee, the Court concluded that absence of admission of concealment weighed strongly against levying penalty under section 271(1)(c).
  2. Applicability where final assessment shows loss: For assessment year 1967-68 the Court noted that even after additions the final assessment resulted in a loss (negative income). It applied the Punjab & Haryana High Court decision (CIT v. Prithipal Singh & Co.)—and noted the Supreme Court's refusal to intervene—to hold that the penal provision in section 271(1)(c) (and the Explanation) applies to positive income only and not to a case where the assessee is finally assessed at a loss. Therefore the Explanation to section 271(1)(c) did not arise.
  3. Delay and practical impossibility of producing evidence: The Court reviewed procedural history: original assessments (1971–72) were set aside and reassessment steps occurred about ten years later; penalty proceedings commenced in 1985, some 14–16 years after the original events. The Court accepted the assessee's consistent claim of practical impossibility in producing aged records or witnesses and considered authorities cited on reasonableness of delay. The Court concluded that the Revenue itself, by waiting a long period and by not giving the assessee an opportunity to confront alleged statements made by depositors in unrelated proceedings, could not fairly rely on those statements to sustain penalty.
  4. Reliance on statements made in other proceedings: The Tribunal had relied upon alleged statements by depositors made in other proceedings before different officers. The Court found this reliance improper because the assessee had not been given an opportunity to confront or cross-examine those depositors; moreover no particulars of such statements were on record.
  5. Net conclusion of applicability of section 271(1)(c): Combining the absence of any admission of concealment, the principle that the penalty is intended for positive incomes, the practical difficulties and unexplained delay, and the improper reliance on extraneous statements, the Court concluded that penalties under section 271(1)(c) ought not to have been levied for either assessment year.

Holding and Implications

Holding: The Court answered all the questions referred by the Tribunal in the negative. In particular, the Court held that penalty under section 271(1)(c) of the Income-tax Act, 1961, could not be levied in respect of the assessment years 1966-67 and 1967-68 in the facts of the present case.

Direct consequences and implications:

  • The penalties levied by the Assessing Officer (and confirmed by the Tribunal) for the assessment years in question were held to be unsustainable and in favour of the assessee. The Court explicitly concluded that the Explanation to section 271(1)(c) did not apply to the 1967-68 assessment and that penalty under section 271(1)(c) could not be levied for either year.
  • The Tribunal was held to be wrong in confirming the penalty based on alleged statements by depositors in other proceedings when the assessee had not been given opportunity to confront or cross-examine them.
  • The Court noted the procedural history and delay; while it considered authorities on reasonableness of delay, the central bases for denying penalty were absence of admission and the fact of final assessment at a loss (for 1967-68), together with unfair reliance on extraneous statements.
  • The order records that despite opportunities, no one appeared on behalf of the Revenue and the Court heard only the advocate for the assessee. The Court made no order as to costs.
  • Broader precedent: The Court applied existing precedents to the facts but did not purport to lay down a new principle of law beyond applying those authorities; the decision operates as an application of the cited case law to the present factual matrix (i.e., a decision in favour of the assessee on the listed questions).

Note: This summary is strictly based on the content of the provided opinion and does not add facts or inferences not present in that opinion.

Show full summary ...

    Shree Nirmal Commercial Ltd. v. Commissioner Of Income-Tax

    S.J Kathawalla, J.:— The Income-tax Appellate Tribunal, Mumbai, has at the instance of the assessee, referred to this court the following questions arising out of the order of the Tribunal dated September 27, 1991, in Income-tax Appeals Nos. 3301 and 3302.Bom/87 for the assessment years 1966-67 and 1967-68.

    Assessment years 1966-67 and 1967-68:

    “1. Whether, on the facts and in the circumstances of the case, penalty is leviable under section 271(1)(c) of the Income-tax Act, 1961?

    2. Whether, on the facts and in the circumstances of the case, the Tribunal has rightly rejected the contention of the assessee in law that after lapse of 17 years as the assessee could not produce the depositor and accordingly no penalty should have been levied?

    3. Whether, on the facts and the circumstances of the case, when the income assessed under section 68 of the Act, penalty under section 271(1)(c) can be levied in law?

    4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the penalty by relying upon the alleged statement made by the depositor in some other proceedings before some other officers?

    Assessment year 1967-68 only:

    Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Explanation to section 271(1)(c) of the Act was applicable to the assessment year 1967-68?”

    2. The facts giving rise to the assessment order for the assessment year 1966-67 are as under:

    (i) For the assessment year 1966-67, the assessee had on July 25, 1970, filed a return showing “nil” income. However, under the assessment order, the income determined as total income of the assessee was Rs. 2,90,500. The said income of Rs. 2,90,500 was included as undisclosed income of the assessee on the ground that the assessee had shown bogus loans from five different parties. The said assessment (original assessment) was completed on July 23, 1971.

    (ii) The original assessment was thereafter set aside by the Appellate Assistant Commissioner, D-Range, Mumbai, vide his order No. DAP-166/71-72, dated March 4, 1972, with a direction to redo it after giving proper opportunity to the assessee to substantiate its claims.

    (iii) With a view to give a fresh opportunity to the assessee to substantiate its claims, the assessee was asked by a letter dated August 13, 1981 (i.e, approximately 10 years from the date of setting aside of the original assessment) to produce all necessary details and evidence in support of its claims in respect of the loans in question. The assessee through its representative appeared before the Income-tax Officer and requested that summonses be issued to the five parties who had advanced loans to the assessee during the relevant assessment year and also provided their respective addresses. Out of the five parties/concerns, whose addresses were provided by the assessee to the Income-tax Officer, four of them appeared before the Income-tax Officer and satisfied him that the loans given by them were genuine. Only in one case, i.e, the case of M/s. Ramgopal Laxminarayan who was stated to have advanced the loan of Rs. 50,000, the summons was returned back with the postal remarks “unserved”. Upon this being pointed out by the Income-tax Officer to the assessee, the assessee submitted that in view of the matter being very old, i.e, more than 16 years had elapsed from the date when the loan was taken by the assessee, it was rather impossible for the assessee to bring the said M/s. Ramgopal Laxminarayan before the authority. Since it was the assessee's case that he had taken loan through a broker, the Income-tax Officer asked him to produce the broker for cross-examination. However, the assessee pleaded his helplessness in the matter on similar grounds. These submissions of the assessee were rejected by the Income-tax Officer on the ground that the said M/s. Ramgopal Laxminarayan had, earlier confessed that he has not advanced any loan to the assessee. The Assessing Officer thereafter by his order passed in the year 1982 computed the total income of the assessee by adding Rs. 50,000 as income from undisclosed sources to the “nil” income shown by the assessee.

    (iv) The assessee thereafter challenged the above quantum order passed in 1982 up to the Income-tax Appellate Tribunal but was unsuccessful.

    (v) Thereafter, in mid June, 1985, the Assessing Officer initiated penalty proceedings against the assessee under section 271(1)(c) of the Income-tax Act. During the penalty proceedings before the Assessing Officer, the assessee explained that the loan could not be substantiated because of the very long lapse of time. The explanation did not find favour with the Assessing Officer and he invoked the provisions of the Explanation to section 271(1)(c) as it stood between April 1, 1964, and March 31, 1976, and levied penalty of Rs. 50,000 against the assessee for the assessment year 1966-67.

    (vi) The assessee challenged the order of the Assessing Officer before Commissioner of Income-tax (Appeals) who, inter alia, held that the assessment was set aside on September 4, 1972, and reassessment was taken up only in 1981 and that after such a long gap it was impossible for any person to establish the genuineness of the transaction. The Commissioner of Income-tax (Appeals), therefore, cancelled the penalty levied by the Assessing Officer. The said order of the Commissioner of Income-tax (Appeals) was, therefore, impugned by the Revenue before the Income-tax Appellate Tribunal.

    (vii) The Appellate Tribunal, whilst deciding in favour of the Revenue and against the assessee, held that no weight should be attached to the lapse of time before the original assessment and reassessment. The contention of the assessee as regards lapse of several years between the original assessment and reassessment was also rejected on the ground that the said contention was considered by the Tribunal at the time of deciding the quantum appeal and the same was rejected even at that time. The Tribunal did not find favour even with the assessee's contention that no opportunity was allowed to the assessee to cross-examine the creditors who had allegedly made a statement before another Assessing Officer that the loan was only a havala entry. The Tribunal also held that the Explanation to section 271(1)(c) raised a rebuttable presumption in favour of the Revenue and the onus is on the assessee to rebut it and that the assessee failed to rebut the presumption because of which the penalty was rightly levied.

    (ix) The Appellate Tribunal as stated above thereafter at the instance of the assessee, has made the above reference to this court.

    Assessment year 1967-68.

    (i) For the assessment year 1967-68, the original assessment was completed on March 30, 1972. The total income determined was Rs. 37,47,450 Subsequently, the Appellate Assistant Commissioner, Special Range IV, Mumbai, vide his order dated April 12, 1973, had set aside the additions of Rs. 1,25,000 added as cash credits in respect of three parties. As directed by the Appellate Assistant Commissioner in his said order, a fresh opportunity was given to the assessee by the Income-tax Officer's letter dated August 12, 1981, to produce necessary details and evidence in support of the claim of genuineness of the said cash credits. The assessee through its representative requested the Assessing Officer to issue summons to the parties whose addresses were provided by the assessee to the officer. The summonses issued to two of the parties were returned back by the postal authorities with the remarks “left place”. As far as the third party is concerned, he informed the Assessing Officer that he is 72 years old and that he had preserved the books of account beginning from the assessment year 1971-72 onwards and all his previous records were destroyed by him because he never thought that there will be any necessity of production of the same at any time. He, therefore, pleaded his helplessness in complying with the requirement of the summons. However, he stated that he did remember to have had loan transactions with the assessee.

    (ii) Thereafter, the Assessing Officer asked the assessee to produce the three parties before him, but the assessee expressed its helplessness on the same grounds that were stated by the assessee for the assessment year 1966-67. The Assessing Officer, therefore, rejected the contention of the assessee and added a sum of Rs. 1,25,000 as income from undisclosed sources to the assessees' negative/loss income of Rs. 4,64,301 and thereafter computed its total income as negative/loss income of Rs. 3,39,301. This order was challenged by the assessee up to the Appellate Tribunal and the only relief that the assessee could get was that the sum of Rs. 1,25,000 which was treated as his income from undisclosed sources was reduced to Rs. 75,000. The fact remains that the income-tax authorities also computed the total income of the assessee for the assessment year 1967-68 as negative/loss income even after the said addition of Rs. 1,25,000 as income from undisclosed sources.

    (iii) The facts pertaining to penalty proceedings initiated against the assessee for the assessment year 1967-68 are identical to that of the assessment year 1966-67 since common orders were passed by the Assessing Officer, the Commissioner of Income-tax (Appeals) and the Appellate Tribunal in respect of both the assessment years, i.e, 1966-67 and 1967-68. Only one additional argument which the assessee had advanced before the Appellate Tribunal pertaining to the assessment year 1967-68 was that the Explanation to section 271(1)(c) did not apply for the assessment year 1967-68 because although the addition of Rs. 1,25,000 made by the Assessing Officer was more than 20 per cent, of the loss returned, the addition as finally sustained of Rs. 75,000 in the quantum appeal by the Tribunal was less than 20 per cent, of the returned loss. The said contention of the asses-see was rejected by the Appellate Tribunal.

    (iv) Thereafter, the Tribunal preferred the present reference before this court raising the questions as set out hereinabove.

    3. Mr. Mehta appearing for the assessee after taking us through section 271 of the Income-tax Act, 1961, as it stood prior to its amendment, drew our attention to the Division Bench judgment of this court in the case of Commissioner Of Income-Tax, Poona v. Bhimji Bhanjee & Co. and Co. reported in [1984] 146 ITR 145. In that case, during the course of assessment proceedings under the relevant assessment years, the Income-tax Officer while scrutinising the books of account had noticed certain cash credited in various accounts. The assessee admitted that there were certain cash credits in its books of account in favour of the named parties. However, the assessee was unable to produce evidence to show that the cash credits were genuine. The assessee had not admitted that it had concealed any income. On this the Income-tax Officer took a view that the assessee had failed to discharge the burden of proof and brought to tax the amount of Rs. 10,590 as income of the assessee from undisclosed sources. The Inspecting Assistant Commissioner proceeded to levy penalty of Rs. 10,590 under the amended section 271(1)(c) of the said Act. On an appeal preferred by the assessee to the Income-tax Appellate Tribunal, the Tribunal allowed the same taking a view that the assessee had not admitted concealment of income and that merely because the amount of Rs. 10,590 was surrendered for taxation by the assessee, this did not ipso facto raise an inference that the assessee admitted that it was his concealed income. From the aforesaid decision of the Tribunal the following question was referred to the court:

    “Whether, on the facts and in the circumstances of the case, the Tribunal has erred in law in holding that the penalty levied on the assessee under section 271(1)(c) of the Act for the assessment year 1968-69 was not sustainable?”

    4. The learned advocate appearing for the Revenue while impugning the order of the Appellate Tribunal submitted before the court that the assessee had in fact admitted the concealment of income and, hence, it was not necessary for the Revenue to prove the same. It was submitted by him that in view of this the burden was on the assessee to show that there was no concealment and the conclusion arrived at by the Tribunal was errpneous. The Revenue strongly relied on a decision in the case of Western Automobiles (India) v. Commissioner Of Income-Tax, Bombay City-I, Bombay reported in [1978] 112 ITR 1048 (Bom). In that case, when the Income-tax Officer discovered from the account books of the assessee, loans to the tune of Rs. 90,000 he came to a prima facie conclusion that the loans reflected the concealed income. The assessee-firm agreed to the addition of the aforesaid amount of Rs. 90,000 as his business income for that year and addition was made by the Income-tax Officer as the assessee's concealed income from business and not as income from undisclosed sources. The court, therefore, was of the view that the facts in Western Automobiles (India) did not apply to the case being decided by them because the assessee had nowhere admitted that it had concealed its income and even the Income-tax Officer had not added the additional amount as concealed income from business but as from undisclosed sources. This court, therefore, in the case of Commissioner Of Income-Tax, Poona v. Bhimji Bhanjee & Co. and Co. [1984] 146 ITR 145 decided the above question in the negative and in favour of the assessee. Mr. Mehta on behalf of the assessee submitted before us that the decision in Commissioner Of Income-Tax, Poona v. Bhimji Bhanjee & Co. and Co. [1984] 146 ITR 145 is clearly applicable to the present case. Mr. Mehta next cited a decision of the Punjab and Haryana High Court in the case of CIT v. Prithipal Singh and Co. reported in [1990] 183 ITR 69. In that case, the assessee had filed the return declaring a loss of Rs. 3,35,830. The Income-tax Officer, vide his order, found that it was a case of concealment and suppression of income as the assessee had furnished inaccurate particulars of its income. He computed the assessee's income at Rs. 1,47,978 and in the course of assessment proceedings started penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961, for the reason that the assessee had grossly understated its income. The assessee went in appeal before the Appellate Assistant Commissioner who determined the loss at Rs. 34,164 against the returned loss of Rs. 3/35,830. In the penalty proceedings initiated the Income-tax Officer imposed penalty of Rs. 3,50,000 for concealment under section 271(1)(c) of the Income-tax Act for that assessment year. The assessee appealed before the Income-tax Appellate Tribunal against imposition of the said penalty which appeal was allowed by the Tribunal holding that no penalty would be imposed upon the assessee when it had returned a loss and it had been assessed finally on a loss figure. Thereafter, the Commissioner of Income-tax (Central), Ludhiana, moved an application before the Income-tax Appellate Tribunal, Amritsar, which referred the following two questions to the Punjab and Haryana High Court.

    “(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding:

    (a) that the provisions of the Explanation to section 271(1)(c) will not be attracted to the present case?

    (b) that the word ‘income’ occurring in clauses (c) and (iii) of section 271(1) refers to a positive income only and not to a loss?

    2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in cancelling the penalty order passed by the Inspecting Assistant Commissioner by holding that no penalty could be levied against the assessee?”

    5. The Punjab and Haryana High Court answered all the questions set out hereinabove in the negative, i.e, in favour of the assessee and against the Revenue in the following terms (page 71 of 183 ITR):

    “‘Income’ has been defined in section 2(24) of the Act which clearly includes profits, gains, dividends or other benefits derived only. Loss cannot possibly be termed as income. Under section 139(1) of the Act, a person is required to furnish a return only if his total income during the previous year exceeded the maximum amount which is not chargeable to income-tax. If the same falls short of the maximum amount which is not chargeable, which has been the case here as per final assessment, he need not file a return. A person who sustains a loss, however, may file a return in view of sub-section (3) of section 139 of the Act if he wants to claim that the loss or any part thereof should be carried forward. The penal provisions of section 271(1)(c), therefore, are attracted only in the case of an assessee having positive income and not loss, as the question of concealment of income to avoid payment of tax would arise only in the former case. Penalty is a deterrent measure to prevent evasion of tax and when there was no tax payable, there could not be any such evasion so as to provide a scope for levying any penalty. In the present case, only the loss has been reduced and it cannot be said that the assessee had suppressed any income which would have attracted liability to tax. The question of imposition of penalty, therefore, did not arise. Thus, on the facts and in the circumstances of the case, the Appellate Tribunal has acted rightly in law in holding that the provisions of the Explanation to section 271(1)(c) will not be attracted to the present case. The word ‘income’ occurring in clause (c) and sub-clause (iii) of section 271(1) of the Act refers to positive income only and that no penalty could be levied against the assessee.”

    6. The aforesaid judgment of the Punjab and Haryana High Court in CIT v. Prithipal Singh and Co. [1990] 183 ITR 69 was impugned by the Commissioner of Income-tax before the hon'ble Supreme Court of India by way of special leave petition. The hon'ble Supreme Court was pleased to dismiss the said special leave petition as reported in CIT v. Prithipal Singh and Co. [2001] 249 ITR 670. Mr. Mehta submitted that the decision in CIT v. Prithipal Singh and Co. squarely applies to the present case.

    7. Mr. Mehta also took us through the judgments reported in Mohd. Atiq v. ITO [1962] 46 ITR 452 (All); P. Krishna Bhatta v. Agrl. ITO [1981] 132 ITR 21 (Ker) and K.P Narayanappa Setty and Co. v. CIT [1975] 100 ITR 17 (AP) wherein it is held that though no time limit may have been prescribed by the Income-tax Act imposing penalty, the penalty should be imposed within a reasonable time and that penalty levied after the delay of 14/16 years without any valid reason/explanation is invalid. Mr. Mehta submitted that in the present case penalty is levied on the assessee after about 16 years from the date of filing of the first assessment orders without any valid reason/explanation and the same is, therefore, not valid.

    8. We have considered the facts and circumstances of the case and also the case law cited by Mr. Mehta. In the present case, in the reassessment for the assessment year 1966-67 an amount of Rs. 50,000 was added as income of the assessee through undisclosed sources. Similarly, in the reassessment for the assessment year 1967-68 the amount of Rs. 1,25,000 was treated as income of the assessee from undisclosed sources. The assessee at no point of time has admitted that the income treated by the authorities for the assessment year 1966-67 and the assessment year 1967-68 as income from undisclosed sources is concealed income. The ratio laid down by the Division Bench of this court in the case of Commissioner Of Income-Tax, Poona v. Bhimji Bhanjee & Co. and Co. [1984] 146 ITR 145, therefore, squarely applies to the facts of the instant case and we do not find any hesitation in coming to the conclusion that the income-tax authorities who have assessed the income of the assessee for the assessment year 1966-67 and the assessment year 1967-68 under section 68 of the Income-tax Act ought not to have levied any penalty under section 271(1)(c) of the Income-tax Act, 1961.

    9. Again, it is clear that by an order dated April 24, 1982, the Income-tax Officer has computed the income of the assessee for the assessment year 1967-68 as negative/loss income of Rs. 4,64,301. The Income-tax Officer thereafter added an amount of Rs. 1,25,000 as income of the assessee from undisclosed sources and thereafter computed its total income as negative/loss income of Rs. 3,39,301. The Income-tax Officer, therefore, finally assessed the assessee for the assessment year 1967-68 at the loss figure amounting to Rs. 3,39,301. In view thereof, the decision of the Division Bench of the Punjab and Haryana High Court in CIT v. Prithipal Singh and Co. [1990] 183 ITR 69 to the effect that the word “income” occurring in clause (c) and sub-clause (iii) of section 271(1) of the Act refers to positive income only and that no penalty could be levied against the assessee who is assessed finally at a loss figure squarely applies to the present case. In fact, as set out earlier even the hon'ble Supreme Court has declined to interfere with the said decision of the Punjab and Haryana High Court and dismissed the special leave petition filed against the said judgment by the Commissioner of Income-tax, Punjab and Haryana. In view thereof, we hold that in the present case no penalty could be levied under section 271(1)(c) of the Income-tax Act, 1961, and the question of application of the Explanation to section 271(1)(c) of Income-tax Act does not arise. On the issue pertaining to the delay in levying the penalty on the assessee, as set out hereinabove, the original assessment for the assessment year 1966-67 was completed on July 23, 1971, and for the assessment year 1967-68 on March 30, 1972. The said orders were set aside and reassessment proceedings started after almost 10 years. The assessee has throughout taken a consistent stand that the contention of the tax authorities that the person/s who had given the loans to the assessee had made a statement that they have in fact not given any loan is incorrect and was made before some other Income-tax Officer in some other proceedings. The assessee has consistently contended that the alleged statements were made behind the back of the assessee and the assessee was never given any opportunity to confront them and/or cross-examine them. No particulars of any such statement/s are on record. In any event, the said original assessment was set aside and the income-tax authorities themselves at the time of reassessment of the assessee's income pertaining to the assessment year 1967-68 and the assessment year 1968-69 once again tried to summon the parties who had given loans to the assessee. The assessing authority surely did not expect all the parties to come forward with records which by that time were about 15/16 years old. Despite that four of the parties who had given loans to the assessee in the assessment year 1966-67 and whose loans were treated as bogus loans in the original assessment came forward with the documents and satisfied the taxing authorities about the genuineness of the loans given by them to the assessee. Even for the assessment year 1967-68 only two parties who had given loans to the assessee aggregating to Rs. 75,000 were disbelieved on the ground that they were not produced before the tax authorities. The penalty proceedings were admittedly initiated in the year 1985. We are, therefore, of the view that no penalty could have been levied on the assessee pertaining to the assessment year 1966-67 and the assessment year 1967-68 on the ground that the assessee could not produce the depositors after a lapse of 17 years from the date of the loan received from the parties by the assessee. The Tribunal was also wrong in confirming the penalty levied by the Income-tax Officer in the year 1985, relying upon the purported statements made by the depositors in some other proceedings before some other officers some time in the year 1971-72 when admittedly the assessee was not given any opportunity to confront the said depositors by way of cross-examination.

    10. For the aforesaid reasons, all the four questions raised by the Tribunal in 1 the present reference for the assessment year 1966-67 and the assessment year 1967-68 and one question for the assessment year 1967-68 are answered in the negative, i.e, in favour of the assessee and against the Revenue. As set out in our order dated July 31, 2008, despite repeated opportunities given to the Revenue no one has appeared on behalf of the Revenue. We have, therefore, proceeded to pass the present order after hearing the advocate representing the assessee. In any event we do not pass any order as to costs.

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