Decided on August 07,1975



Pathak, C.J. - (1.) THE following question of law has been referred by the Income-tax Appellate Tribunal, Gauhati Bench, under Section 256(1) of the Income-tax Act, 1961, hereinafter referred to as " the Act " : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the assessee firm had furnished inaccurate particulars of income and, therefore, penalty levied under Section 271(1)(c) is valid ? "
(2.) THE statement of the case discloses the following facts : THE assessee is a partnership firm having seven partners during the accounting year, which is 2019 R.N. THE names of the partners are- The firm was carrying on business in various miscellaneous articles with head office at Gauhati and branches at Tinsukia, Calcutta and Gauhati. The assessee-firm filed the return on October 10, 1963, showing an income of Rs. 1,06,798. The Income-tax Officer found that the following interest payments were claimed as deduction : At the time of assessment the assessee firm submitted that the credits appearing in the accounts in the name of the above parties were, in fact, the moneys belonging to some of the partners of the firm and these partners made voluntary disclosure under Section 24 of the Finance (No. 2) Act, 1965. The Income-tax Officer held that the interest shown as paid to these parties were not actually paid to a third party but to the partners themselves. He, therefore, added it back and allocated it among the various partners. There was an appeal against the additions made on this ground and the Income-tax Appellate Tribunal held that the additions were rightly made.
(3.) THE Income-tax Officer initiated penalty proceedings under Section 271(1)(c) and referred the matter to the Inspecting Assistant Commissioner who found that the assessee had made a false claim for deduction. He, therefore, held that under the law any interest payable to a partner is to be included in the assessment of the firm and that the assessee in its accounts, knowing fully well that the interest should have been written back in its return, had not done so with a mala fide intention of reducing the taxable income. In view of this, he further held that the provisions of Section 27I(1)(c) were attracted, and he imposed a penalty of Rs. 15,000. Against the penalty order the assessee preferred an appeal before the Income-tax Appellate Tribunal. THE Tribunal found that the assessee furnished inaccurate particulars of its income and it was within its knowledge that the particulars furnished were not correct. THE Tribunal pointed out that it was not possible to accept that the partners and the firm were separate entities in so far as the consciousness about the real state of affairs was concerned, and that the partners knew that the claim for interest was not genuine, and that they also knew that" these amounts belonged to the partners themselves. In that view, the Tribunal upheld the levy of penalty and dismissed the assessee's appeal. At the relevant time Section 271(1)(c) was in the following terms : "271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person--......... (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,........." ;

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