Saryasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following two questions have been referred to this court: " I. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 271(1)(c) of the Income-tax Act, 1961, read with the Explanation to that section, the Tribunal was correct in holding that the department had failed to prove concealment of income in regard to the sum of Rs. 26,000 and interest amounting to Rs. 1,096 by the assessee-company ?
(2.) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that apparently an artificial juridical person like a limited company is incapable of conscious concealment of income and it would be well nigh impossible for the department to prove the existence of mens rea in the case of a company and, hence, the company was not liable to penalty for concealment ? " 2. This reference relates to the assessment for the assessment year 1964-65. In the books of account of the assessee-company, there were cash credits aggregating to Rs. 26,000 in the name of four ladies who were alleged to be related to one of the directors. The ITO did not accept the explanation offered with regard to these cash credits and added these as the assessee's income from undisclosed sources and, consequently, disallowed the interest claimed thereon. The ITO also initiated penalty proceedings under Section 271(l)(c) of the I.T. Act, 1961, for concealment of income with regard to the amount of cash credits and interest. From the order of the ITO, it appears, that the names of the four ladies and the sums standing in their respective names were as follows : JUDGEMENT_747_ITR130_1981Html1.htm
(3.) They are all related to Sudhir Chandra Nawn, a director of the assessee-company. Jyostna Nawn is the wife of Sudhir Chandra Nawn and Swagata Nawn is their minor daughter. Smt. Nanda Rani Dutt is also related, being the married daughter of Sudhir Chandra Nawn. Smt. Nilima Nawn is also another daughter of Sudhir Chandra Nawn. In view of the fact that in this reference an elaborate argument has been made on the nature of the explanation given by the assessee and the consequences thereof it would be appropriate for us to set out the actual evidence which according to the ITO were relevant for the purpose in the assessment order which stated, inter alia, as follows : " Smt. Jyostna Nawn is the wife of Sri Sudhir Ch. Nawn, a director of the assessee-company, and Smt. Swagata Nawn is their minor daughter. At first, notices under Section 131 were served on Sm. Jyostna Nawn and Sm. Swagata Nawn (at that time it was not known that she was a minor) and Smt. Nanda Rani Datta. By a letter dated 26th October, 1965, Smt. Jyostna Nawn prayed for time to appear before me to give evidence in this case under Section 131 on the ground that she was suffering from flu. In this letter, she wanted time also for her daughter Smt. Swagata Nawn. But later on 11th November, 1965, she wrote me another letter stating that she was unable to appear before me as she was a pardanashin Hindu housewife. If she was a pardanashin lady, it would have been stated by her in the beginning to me in the letter dated 26th October, 1965, applying for time to appear before me. Therefore, it appears to me that the story of her being a pardanashin lady is nothing but a pretext to avoid cross-examination to establish the truth about the loans shown to have been received by the assessee from her minor daughter. However, Smt. Jyostna Nawn explained in her letter dated 11th November, 1965, that she accumulated the sum of Rs. 6,000 over the years from 1942 onwards out of a sum of Rs. 252 received by her every year as interest on a loan given to M/s. Nawn Estate Pvt. Ltd. It is difficult to believe that this lady accumulated Rs. 6,000 and kept the accumulated balance with her in cash over more than 20 years out of a paltry sum of Rs. 252 received every year as interest. The assessee has been unable to produce any evidence to show that this lady had any cash sum of Rs. 6,000 with her before 8th April, 1963. In the circumstances, the source of the money amounting to Rs. 6,000 deposited in her name remains unexplained. Therefore, this is treated as the assessee's income from some undisclosed source. Regarding Smt. Swagata Nawn, Smt. Jyostna Nawn, her mother, has stated in a letter dated 11th November, 1965, that her husband, Sri Sudhir Nawn, ' used to make regular contribution to my said daughters apart from all other expenses of her. My daughter, Smt. Swagata, saved almost the entire money received from her father for years together and kept the same with me'. As in her own case neither has she produced any evidence nor the assessee was able to produce any evidence that Smt. Swagata possessed a cash sum of Rs. 6,000 before 8th May, 1963. In the allied case of M/s. Premier Theatres Pvt. Ltd. in which also Sri Sudhir Ch. Nawn is a director, cash deposits have been observed in the names of his many unmarried daughters and married daughters. Same explanation has been offered with regard to the sources of the sums said to have been advanced by them in that case. Without strict proof that the daughters of Sri Sudhir Ch. Nawn had any savings at any time from the alleged contributions said to have been made by their father, I am unable to accept that Smt. Swagata had any money with her to advance same as loan. In the circumstances, this sum of Rs. 6,000 as well is being assessed as income of the assessee from some undisclosed source. Regarding Smt. Nandarani Datta it is stated that she lives in a village in Hooghly where a notice under Section 131 was issued. There has been no response from this lady. The assessee was required to produce necessary evidence in this connection but since the assessee has not been able to prove the circumstances, a sum of Rs. 3,000 deposited in her name is also a case of assessee's income from undisclosed sources. Regarding the deposit of Rs. 11,000 on 14th May, 1963, in the name of Smt. Nilima Nawn, she has explained that she had an account with the Central Bank of India, Shyambazar, from which she withdrew a sum of Rs. 11,000 on llth May, and paid the same to the assessee as loan to earn interest. While examining her bank account it was discovered that there was a deposit for exactly the same sum of Rs. 11,000 on 14th May, 1963, in her bank account. Later, by a letter dated 26th October, 1965, she explained that she received a loan of Rs. 11,000 from Sri Subodh Ch. Das which has been deposited in her bank account on 14th May, 1963. Sri Subodh Ch. Das, who is 'assessed in this circle, is a partner of R.F. in the name of M/s. R. B. A. Amalgamated Traders. He has no other source of income. In the course of his own assessment, he filed a statement showing that he withdrew from the account books of M/s. R. B. A. Amalgamated Traders various sums on various dates during the year as follows: JUDGEMENT_747_ITR130_1981Html2.htm It is stated that out of Rs. 15,000, he paid a loan of Rs. 11,000 to Smt. Nilima Nawn, which cannot be correct. It will appear from what has been stated above that Smt. Nilima Nawn deposited a sum of Rs. 11,000 in her bank account on 14th May, 1963, but the sum of Rs. 2,000 as shown above was withdrawn by Sri Subodh Ch. Das from the account of R.F. on 22nd October, 1963. Therefore, this sum could not have been deposited in the bank account of the lady on 14th March, 1963. Before this, Sri Subodh Ch. Das withdrew a sum of Rs. 9,000 from the R.F. on 11th May, 1963. If this was withdrawn for the purpose of paying a loan to Smt. Nilima Nawn then it would certainly have been received and deposited by Smt. Nilima Nawn in her bank account on llth May, 1963, but this has not been the case. Sri Subodh Ch. Das stated that he had no other source of income except the partnership income. His total withdrawal during the year from the R.F. has been shown above. The last withdrawal was made on 30th March, 1964, i. e., on the last day of the accounting year. Therefore, he must have spent the earlier withdrawals or at least a part of them to meet the family expenses during the year under consideration. Taking these facts into consideration it will appear that the statement of Smt. Nilima Nawn that she received Rs. 11,000 from Sri Subodh Ch. Das on 14th May, 1963, is not correct. Further, he stated in this connection that the alleged loan received from Smt. Nilima Nawn and others by the assessee, as disclosed above, was for the purpose of advancing a loan in turn by the assessee to M/s. R.B.A.A. Traders. Therefore, if Sri Subodh Ch. Das had any money with him to pay any loan then it would be meaningless for him to pay the same to Smt. Nilima Nawn who in turn would pay the same to the assessee, M/s. Rupabani Theatres Pvt. Ltd., in order that M/s. Rupabani Theatres Pvt. Ltd. in turn may pay the loan to M/s. R.B.A.A. Traders of which Sri Subodh Ch. Das himself is a partner. Therefore, the alleged loan of Rs. 11,000 shown to have been received from Smt. Nilima Nawn by the assessee is totally a false claim. The source of this deposited amount of Rs. 11,000 in this name being unexplained, I treat the same as income of the assessee from some undisclosed source...... Rs. 25,000.";