G.S. Singhvi, J. - (1.) THIS order will dispose of all these applications filed by the petitioner under Section 256(2) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"), for directing the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, to refer the following question of law : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal could impose penalty under Section 271(1)(c) of the Income-tax Act ? "
(2.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has rejected the reference applications filed by the petitioner under Section 256(1) of the Act by a common order dated" August 23, 1988. THE dispute between the parties relates to the assessment years 1967-68 and 1971-72 to 1975-76. In order to decide the questions raised in these applications, it would be proper to refer to the facts given in Reference Application No. 1 of 1990. The assessee-firm consisted of three partners, namely, Shri Devendra Kumar, Shri Mool Chand and Smt. Keval Devi. It used to carry on the business of manufacturing sized beams. According to the application, the firm awarded sole selling agency for selling sized beams produced by it to M/s. Luhadia Brothers, a proprietary concern of Smt. Ratan Devi, who was the wife of one of the partners, Shri Davendra Kumar. Smt. Ratan Devi used to carry on her business of sales through an expert person, namely, Shri Madanlal Sethi, who happened to be her sister's son. Shri Nirmal Kumar, son of Smt. Ratan Devi, also assisted her in the business. The assessee-firm claimed before the Income-tax Officer that it had paid the following commission to M/s. Luhadia Brothers : Rs. 13,919 for 1967-68 Rs. 19,811 for 1971-72 Rs. 13,712 for 1972-73 Rs. 3,946 for 1973-74 Rs. 15,844 for 1974-75 Rs. 2,552 for 1975-76 According to the assessee, the Income-tax Officer did not make full inquiry and he did not take the material evidence of Shri Madanlal Sethi and Shri Nirmal Kumar. Nevertheless, he disallowed the gross amount of commission paid to Smt. Ratan Devi holding her to be the benamidar of the assessee and, in doing so, the Income-tax Officer invoked the provisions of Section 40A(2)(a) of the Act. The assessee preferred appeals before the Appellate Assistant Commissioner, 'B' Range, Jaipur, who allowed the appeals and quashed the order passed by the Income-tax Officer. The Revenue preferred appeals before the Income-tax Appellate Tribunal. The Tribunal accepted the appeals filed by the Revenue by its order dated June 28, 1983. The miscellaneous application for modification of this order filed by the assessee was partly allowed by the Tribunal, vide its order dated June 5, 1984. The Tribunal reiterated its view that Smt. Ratan Devi was the benamidar of the assessee, but amended its order to the extent that only the net income of commission should be added in the hands of assessee instead of the gross amount and thus the expenses incurred by Smt. Ratan Devi in earning the commission were admitted to be genuine. The assessee moved an application for reference under Section 256(1) of the Act before the Income-tax Appellate Tribunal, but the Tribunal declined to refer the matter. Thereafter, the assessee approached the High Court under Section 256(2) of the Act. The reference application filed by the assessee under Section 256(2) of the Act was dismissed by the High Court, vide its order dated September 18, 1985 (Rajasthan Textile Industries v. CIT [1987] 164 ITR 732). In the meanwhile, the Income-tax Officer started proceedings under Section 271(1)(c) for imposition of penalty. The Income-tax Officer issued notice to the assessee and concluded that the assessee has concealed some facts and filed incorrect particulars of his income and thus liable for penalty under Section 271(1)(c) of the Act. The Appellate Assistant Commissioner before whom appeals were filed by the assessee allowed the appeals. The Appellate Assistant Commissioner has held that the Income-tax Officer has failed to prove any conscious disregard of the law by the assessee and involvement of any mens rea on the part of the assessee. It relied on the decision of the Supreme Court in CIT v. Anwar Ali [1970] 76 ITR 696 and allowed the appeals filed by the assessee. Further appeals were filed by the Revenue before the Income-tax Appellate Tribunal and the Tribunal, vide its order dated January 15, 1988, allowed the appeals of the Revenue. It held that the Appellate Assistant Commissioner was wrong in coming to the conclusion that there was no conscious disregard of the law. The Tribunal came to the conclusion that there is more than sufficient evidence, which leads it to believe that this is a fit case for penalty as the assessee has furnished inaccurate particulars of its income. On that premise, the Tribunal allowed the appeals of the Revenue, but, at the same time, it directed the Income-tax Officer to recompute the penalty on the net addition made to the income of the assessee on account of bogus claim of commission. The assessee-firm, thereafter, filed applications under Section 256(1) of the Act and, as mentioned hereinabove, the Tribunal has dismissed these applications, vide its order dated August 23, 1988. In refusing to make reference, the Tribunal observed that Smt. Ratan Devi was a benamidar of the assessee-firm. The Tribunal proceeded to observe that whether there was concealment or not is a finding of fact and the Tribunal found this fact in the quantum appeal of the assessee as well as in his penalty appeal that Smt. Ratan Devi was a benamidar of the assessee and the assessee has shown payments of commission to Smt. Ratan Devi, which was not genuine and he is liable for penalty under Section 271(1)(c) of the Act and, therefore, no referable question of law arises. The assessee has argued that the Tribunal's order refusing to refer the question for determination by the High Court suffers from an error of law. The Tribunal has completely ignored the relevant provisions of law and the various decisions of the Supreme Court as well as of the High Courts. The Tribunal has passed the order merely on the ground that Smt. Ratan Devi was held to be a benamidar of the assessee and that by itself was a sufficient ground for imposition of penalty and that once it had come to the conclusion in the quantum appeals that Smt. Ratan Devi was a benamidar of the assessee and the assessee has shown payment of commission to Smt. Ratan Devi, they must be deemed to be not genuine and, therefore, penalty is liable to be imposed on the assessee. According to Shri Luhadia, who is a partner of the firm and who has argued in person, the Tribunal has misdirected itself in refusing to make a reference. He argued with vehemence that a clear question of law arises for consideration in this case.
(3.) SHRI Singhal, learned counsel for the Revenue, has argued that the Tribunal has considered the entire matter objectively and, after taking into consideration the material which was placed before it, the Tribunal had found as a matter of fact that Smt. Ratan Devi was a benamidar of the assessee. That finding of fact has not been disturbed even by the High Court. The earlier reference applications filed by the applicant in the matters arising out of the original assessment order were declined by the High Court. That being the position, the Income-tax Officer was fully justified in initiating proceedings against the petitioner for imposition of penalty by invoking the provisions of Section 271(1)(c) of the Act. SHRI Singhal argued that the Tribunal has given cogent reasons for declining to make a reference on the applications filed by the assessee under Section 256(1) of the Act and that there was no ground for interference by the High Court. He argued that no question of law calls for reference by the High Court. The question as to under what circumstances penalty can be imposed under the provisions of the Income-tax Act was considered by the apex court in CIT v. Anwar Ali [1970] 76 ITR 696. Their Lordships of the Supreme Court were considering the provisions of Section 28 of the Indian Income-tax Act, 1922, which are pari materia with the provisions contained in Section 271(1)(c) of the Act. Their Lordships of the Supreme Court held as under (headnote) ; "Proceedings under Section 28 of the Indian Income-tax Act, 1922, are penal in character. The gist of the offence under Section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and the burden is on the Department to establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars." In CIT v. Khoday Eswarsa and Sons [1972] 83 ITR 369 (SC), their Lordships again held that although the original assessment proceedings for computing tax may be a good item of evidence in penalty proceedings, no penalty can be levied strictly on the basis of the reasons given in the original order of assessment. Relying on the decision in Anwar Ali's case [1970] 76 ITR 696 (SC), their Lordships observed as under (headnote) : "Penalty proceedings being penal in character, the Department must establish that the receipt of the amount in dispute constitutes income of the assessee. Apart from the falsity of the explanation given by the assessee, the Department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. No doubt, the original assessment proceedings for computing the tax may be a good item of evidence in the penalty proceedings ; but penalty cannot be levied solely on the basis of the reasons given in the original order of assessment." ;