C.S.P. Singh, J. - (1.) THE Income-tax Appellate Tribunal, Delhi Bench "B", has referred three questions, two at the instance of the assessee and one at the instance of the Commissioner of Income-tax. Inasmuch as we think that question No. 3 referred at the instance of the Commissioner of Income-tax has not been correctly framed and needs refraining, it will be convenient to set out the questions referred which are as follows : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of Section 271/274 of the Income-tax Act, 1961, are applicable to the present case ? 2. Whether there is any material to warrant the finding that the assessee-company had concealed the particulars of its income or deliberately furnished inaccurate particulars thereof within the meaning of Section 271(2) of the Income-tax Act, 1961? and 3. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in reducing the penalty under Section 271(1)(c) from Rs. 70,000 to Rs. 5,000 ?"
(2.) THE first two questions do not need any refraining. THE third question does not, however, clearly bring' out the matter in dispute between the parties, and as such it is reframed as below : "Whether, on the facts and in the circumstances, the finding of the Tribunal that the assessee had not concealed income to the extent of Rs. 67,500 and Rs. 21,700 within the meaning of Section 271(1)(c) of the Indian Income-tax Act, 1961. is correct in law?" The facts necessary for the decision of the question may now be stated. The relevant assessment year is the year 1958-59. The assessee filed his return but that return was not accepted. The Income-tax Officer made certain additions and disallowed certain expenses. Of the various amounts disallowed by the Income-tax Officer, we are concerned in this reference with three items, i.e., (1) inflation in price of sugar-cane of an amount of Rs. 48,500, (2) excess shortage claimed for cane, Rs. 67,500, and (3) salary cf out-station staff of loading contractors, Rs. 21,700. The Income-tax Officer, while making the assessment, issued notice under Section 271 of the Income-tax Act, 1961. Inasmuch as the amount of penalty which was liable to be imposed on the assessee was in excess of Rs, 1,000, a subsequent notice was issued on July 2, 1964, by the Inspecting Assistant Commissioner of Income-tax, Meerut. The assessee-company replied to this notice by its letter dated July 19, 1964. The Inspecting Assistant Commissioner of Income-tax in respect of the disallowance of Rs. 48,500 was, however, of the opinion that the entries in the books in respect of these purchases were suspicious. These entries were not found to have been made in regular course, as they were not entries in the handwriting of the weighment clerk who had made the other entries for the day. The assessee admitted that the entries had been made by one Sri Kishan Swarup, cane-accountant whose ordinary job was not to make entries in the lorry weighment sheets as his duties were of a supervisory nature. It was further noticed that, in respect of other despatches made from the farm, the same was to be sent by serially numbered challans and the numbers of the challans were noted in the weighment sheets. In the case of these purchases said to be made from the farm, no such challan number was entered against these entries though the mill engaged contractors' lorries for transport of cane under written agreement. The entries invariably mentioned the number of the trucks owned by the mill. These mill lorries were shown to have made some trips in quick succession, which, in the very nature of work involved, was highly improbable. In view of these circumstances, he held that the evidence indicated that the canes purchase noted against these entries were false and fictitious.
(3.) CONSIDERING the disallowance for shortage amounting to Rs. 67,500 the Inspecting Assistant Commissioner of Income-tax referred to the agreement which had been entered into by the assessee with its loading and unloading contractors. According to the agreement, they were to be paid at 9-1/2 pies per maund, plus 2% allowance for shortage in transist. One Sri Kedar Nath Kanodia has been examined by the Income-tax Officer on July 20, 1959, and he had stated that he did not receive payment at the rate of 9 1/2 pies per maund, nor did he get credit for the value of 2% against shortage. It was also noticed that the actual shortage was 21,143 maunds valued at Rs. 26,429 while the assessee claimed Rs. 1,34,661 for shortage at 2%. In view of these facts, the assessee accepted the addition of Rs. 67,500 under this head made by the Income-tax Officer. The Inspecting Assistant Commissioner, taking into consideration all these facts, came to the conclusion that the assessee was reducing his income by debiting false claim for excess shortage. He held, therefore, that in respect of this item the assessee was guilty of intentional concealment. In respect of the third item of disallowance, relating to salary of outstation staff of loading contractors, the Inspecting Assistant Commissioner-referred to the statement of Sri Kedar Nath Kanodia, who stated that he had employed his own men at the out-centres, and there was no employee of the mill working at the centres. He stated that the payments to the staff had been made by him and that the company had made no payments. He also stated that the company's accountant had obtained signatures of the members of the staff on salary sheets and this procedure was followed in respect of the other contractors also. It appears that while making this addition of Rs. 21,700, the Income-tax Officer had investigated the claim and had found it to be false. The Inspecting Assistant Commissioner of Income-tax taking all this into account held that the assessee had made a bogus claim, and had thereby concealed income to the extent of Rs. 21,700 under this head. The Inspecting Assistant Commissioner also took into account the fact that the assessee had accepted the additions, and had not filed any appeal against the assessment order which went to show that the items in respect of which additions had been made by the Income-tax Officer represented the assessee's income. He also made a note of the fact that the assessee did not dispute the additions. Taking these facts into account, and the fact that the assessee had not included these items in its return, he held that a deliberate under-statement of income had been made by the assessee, and as such penal action was called for.;