R.K.AGRAWAL,J. - (1.) THE Income Tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this Court: Whether on the facts and in the circumstances of the case, the Tribunal was justified in confirming the penalty under Section 271(1)(c) read with Explanation 1 thereto
(2.) THE reference relates to the Assessment Year 1989 -90 in respect of the penalty imposed under Section 271(1)(c) of the Act. Briefly stated, the facts giving rise to the present reference are as follow: The applicant has been assessed to income tax during the assessment year 1989 -90 as a registered firm. During the course of the assessment proceeding, three cash credit entries of Rs. 26,000/ - appearing in the name of Master Manish Matlani, Rs. 78,000/ - appearing in the name of Master Hitesh Matlani and Rs. 61,000/ - appearing in the name of Master Lucky Matlani were noticed by the Assessing Authority. He proposed addition of the aforesaid amount under Section 68 of the Act. The applicant gave the explanation that all the three depositors who were minors, have been regularly assessed to tax with the Income Tax Officer, Ward II (VII), Kanpur and were maintaining savings bank account with the Indian Overseas Bank, Swarup Nagar Branch, Kanpur. The applicability of the provisions of Section 68 of the Act was also challenged on the ground that the income had already been assessed in the hand of the minors and that the deposits have come from their savings bank account through cheques. The genuineness of the cash credit as well as the capacity to give money/loan stands established. The Assessing Authority after examining the explanation and the documents filed by the applicant in the assessment proceeding, came to the conclusion that all the three minors are grand sons of Sri Nainu Mal Matlani who is a partner of the firm and are closely related to the partners. The father of Master Manish Matlani, Sri Ram Chandra Matlani is working as Manager on a salary of Rs. 1,500/ - p.m. in M/s Naini Mal & Sons, which is a sister concern of the applicant whereas Sri Om Prakash Matlani, father of Master Hitesh Matlani and Sri Kanhaiya Lal Matlani, father of Master Lucky Matlani, are working in the applicant firm on a monthly salary of Rs. 1,500/ -. He further found that Master Lucky Matlani had a credit balance of Rs. 27,000/ - in the applicant firm. He had made a deposit of Rs. 2,000/ - on 2.4.1988, Rs. 58,000/ - on 21.6.1988 and Rs. 1,000/ - on 1.7.1988 and the entire amount was squared up on 28.7.1988. The source of deposit of Rs. 61,000/ - made during the year was explained as gifts received by the minor on various occasions. However, no proof regarding receipt of gifts was furnished. The only explanation offered was that the minor had shown the gift as his income in his return filed for the assessment years 1986 -87, 1987 -88 and 1988 -89. Sri Kanhaiya Lal, father of Master Lucky Matlani, who was examined under Section 131 of the Act, had deposed in his statement that in the return of income of Master Lucky Matlani filed for the assessment year 1988 -89, Rs. 87,800/ - was shown as cash in hand which was deposited in the savings bank account maintained with the Indian Overseas Bank, Swarup Nagar Branch, Kanpur from where Rs. 58,000/ - was withdrawn and deposited with the applicant firm. On being questioned to explain the source of the income of the minor declared in the income tax return, Sri Kanhaiya Lal had stated that the gifts were the source of the income for which he had no proof and every year the source of income remained the same, i.e., the gifts. On being further questioned as to how the gifts received in each year were not deposited in the bank account immediately or soon thereafter they were received, Sri Kanhaiya Lal had no explanation to offer. The Income Tax Officer examined the savings bank account pass book of Master Lucky Matlani and found that the amount of Rs. 87,800/ - was deposited in cash on 21.6.1988 and on the same day, the money was deposited with the firm. He came to the conclusion that it is nothing but unaccounted profit of the firm which has come to it in the garb of gifts and subsequently as deposits in the name of the minors. So far as the deposit made by Master Manish Matlani is concerned, his account with the applicant firm showed opening credit balance of Rs. 8,000/ - and further credit of Rs. 25,000/ - on 21.6.1988 and Rs. 1,000/ - on 1.7.1988 and the entire amount was squared up on 1.10.1988. The explanation furnished was the same as in the case of Master Lucky Matlani. Sri Ram Chandra Matlani, father of Master Manish Matlani, was examined under Section 131 of the Act and he gave the similar explanation. The copy of the savings bank account of Master Manish Matlani was also examined by the Income Tax Officer who found that Rs. 25,000/ - was deposited on 21.6.1988 in the bank which is the same date on which the amount was credited by the applicant in its books of account. He came to the conclusion that the firm's profit had been routed through minor's bank account. In respect of the deposits appearing in the name of Master Hitesh Matlani, the position was no different. The Assessing Authority added a sum of Rs. 1,65,000/ - towards unexplained cash cedit under Section 68 of the Act. The additions have been upheld upto the stage of the Tribunal. The Income Tax Officer while passing the assessment order, also directed for initiation of penalty proceeding under Section 271(1)(c) of the Act for concealment of particulars of its income. After considering the explanation given by the applicant, he imposed a sum of Rs. 86,950/ - as penalty. The appeal preferred by the applicant has been rejected by the Commissioner of Income Tax (Appeals),Kanpur, which order has been affirmed by the Tribunal.
(3.) WE have heard Sri K.N. Kumar, learned Counsel for the applicant, and Sri A.N. Mahajan, learned Standing Counsel appearing for the Revenue.;