M.C. Jain, J. - (1.) THIS reference has been made by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, under Section 256(2) of the Income-tax Act, 1961.
(2.) THE facts in brief are that the assessee is a Hindu undivided family carrying on business of kirana. THE previous year relevant to the assessment year ended on October 21, 1968. THE assessee declared a gross profit of Rs. 17,414 giving a gross profit rate of 2.5 per cent. on the retail sales of kirana goods totalling Rs. 7,34,267. THE Income-tax Officer was of the opinion that looking to the nature of the business, the gross profit was very low and he observed that as accounts are not supported by stock tally, the account version cannot be relied upon. He made a lump sum addition of Rs. 12,000 in the trading account, which brought the gross profit rate to 4% as was in the past. THE Income-tax Officer at the time of completing the assessment was also of the view that there was concealment of income by the assessee. As such, he initiated penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961 (for short " the Act"). In response to the notice in penalty proceedings, the assessee submitted that the addition was on account of application of higher rate of profit and the assessee had not concealed the particulars of income. The Income-tax Officer, by his order dated October 10, 1973, imposed a penalty of Rs. 15,000. He considered the matter as under : "But the records show that when the statement of affairs of the asses- see was called for by the learned Appellate Assistant Commissioner, he found a net accretion of Rs. 13,326 to the wealth of the assessee, against trading addition of Rs. 12,000. This was brought to the notice of the assessee, vide letter No. 2103 dated July 3, 1973. The assessee could not give any explanation with regard to this accretion to his wealth. In the circumstances as described above, it is amply clear that the assessee fraudulently furnished the particulars of his income which he did by showing smaller rate of profit. The finding of the learned Appellate Assistant Commissioner as to the accretion to wealth remains unchallenged. It is also not the case of the assessee that the accretion was on account of any other income which is not liable for tax. No other source of income excepting the business has been admitted by the assessee. Therefore, any accretion to his wealth has to be necessarily the result of his good profits from the business, which he has not fully disclosed to the Department. " The assessee went in appeal against the order levying penalty and the Appellate Assistant Commissioner of Income-tax, B-Range, Jaipur, by his order dated October 1. 1974 (annexure C), dismissed the appeal. These contentions of the assessee were negatived by the Appellate Assistant Commissioner : that the difference in the income returned and the income assessed is not necessarily the concealed income and that the Income-tax Officer's observation in the order that the assessee could not give any explanation with regard to the accretion to his wealth, is not correct. The Income-tax Officer's letter dated July 3, 1973, was replied by the authorised representative of the assessee, vide letter dated July 13, 1973. It was also contended that the absence of reply to the Income-tax Officer's query, cannot be interpreted as proof of concealment and no penalty can be levied on that basis. The learned Appellate Assistant Commissioner dealt with the matter as under: "The Income-tax Officer has treated the appellant as a defaulter under Section 271(1)(c) of the Income-tax Act on the ground that at the appeal stage, it was found that the assessee had net accretion of Rs. 13,326 to his wealth. Although the appellant has not drawn regular balance-sheet as such, he had filed at the appeal stage (in Appeals Nos. 160 of 1971-72 and 202 and 227 of 1971-72 dated October 13, 1972), statement of assets and liabilities for the assessment year 1969-70 and also for earlier years. On the basis of these statements, it was found that the appellant had net accretion to his capital to the extent of Rs. 13,326. It was on the basis of this finding that the trading additions of Rs. 12,000 were confirmed in appeal. It would appear from the above that the penalty levied by the Income-tax Officer is not merely on the basis of trading additions but on the basis of actual accretion to his capital. The appellant's case is thus not within the scope of the decision of the Income-tax Appellate Tribunal, Jaipur Bench, in M/s. Nassiruddin Brothers, Bhilwara, referred to above. Concealment has been established at least to the extent of Rs. 12,000 and, therefore, the Income-tax Officer was justified in levying a penalty under Section 271(1)(c) of the Income-tax Act. The penalty levied by the Income-tax Officer is Rs. 15,000 against the actual concealment of Rs. 12,000. The appellant has not been able to establish in the course of penalty proceedings either before the Income-tax Officer or in the course of the present appeal, that the calculations regarding capital accretions as made in the appeal order referred to above, were incorrect in any way. Since it is established that the concealment of income had occurred in this, mens rea on the part of the appellant is naturally established." Further appeal was taken by the assessee against the order of the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, by its order dated November 13, 1975 (annexure D), allowed the appeal and cancelled the order imposing the penalty. The Tribunal after considering the facts of the case and after considering the contentions of the assessee and relying on the decision of the Gujarat High Court in CIT v. Lakhdhir Lalji [1972] 85 ITR 77, considered the case as under : " The learned Income-tax Officer at the time of initiating penalty proceedings was of the view that there was concealment of income by the assessee and an ad hoc addition of Rs. 12,000 was made in the trading account. At that time, the learned Income-tax Officer never applied his mind that there was capital accretion and as a result of it there was concealment of income to the extent of Rs. 12,000. The Appellate Assistant Commissioner for the first time in quantum appeal also supported the addition in trading account on the ground that there was capital accretion of Rs. 13,326. The learned Appellate Assistant Commissioner, after so holding, was of the view that from this point of view also, the trading addition was fully justified. If the learned Appellate Assistant Commissioner was of the view that there was concealment of income as a result of accretion to the capital, he could have initiated penalty proceedings under Section 271 of the Act. The learned Appellate Assistant Commissioner never initiated penalty proceedings for such capital accretion. Under these circumstances, the learned Income-tax Officer in penalty proceedings cannot impose penalty on the ground that there was capital accretion in the year of account."
(3.) WITH regard to the explanation relating to capital accretion, the Tribunal recorded that both the parties were directed to produce the copies of the letter and of the reply but they failed to produce. So, the Tribunal observed that it is left with the material which is available on record and observed that in the absence of the letter dated July 3, 1973, and reply dated July 13, 1973, it would be difficult to come to the conclusion whether before the Income-tax Officer or the Appellate Assistant Commissioner, the assessee gave no explanation regarding the capital accretion. The Tribunal, then, proceeded to consider the questions as under : " The assessee maintained books of account and on the basis of those books, the assessee disclosed the profits in question. The authorities below nowhere pointed out which of the particular items in the books disclosed by the assessee are false or unreliable. The learned Income-tax Officer made an ad hoc addition of Rs. 12,000. The assessee also took a constant plea that there was no concealment of income by the assessee. Even in the past, such additions were made on the basis of an estimate by applying a higher gross profit rate. We may also point out if in the opinion of the Appellate Assistant Commissioner, there was accretion in the capital, the learned Appellate Assistant Commissioner could have enhanced the addition in accordance with law. But the learned Appellate Assistant Commissioner never enhanced the addition. On the other hand, the learned Appellate Assistant Commissioner only confirmed the trading addition on a different ground. Looking to the aforesaid facts and circumstances and probabilities of the cases, in our opinion, there were preponderance of probabilities, which go to show that there was no fraud or gross or wilful neglect on the part of the assessee in not returning the assessed income. On the basis of the material on record, it could hardly be said that there was concealment of income by the assessee." The reference application made by the Commissioner of Income-tax under Section 256(1) was rejected by the Tribunal, vide its order dated April 24, 1976, but this court on application under Section 256(2) framed the following questions of law and directed the Tribunal to send the statement of the case and refer the questions for the opinion of this court: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer, while imposing penalty under Section 271(1)(c) of the Act was not entitled to take into consideration the additional fact noticed by the Appellate Assistant Commissioner in the quantum appeal that there was unexplained net accretion to the assessee's capital amounting to Rs. 13,326 ? 2. Whether the finding of the Tribunal that there was preponderance of probabilities, which go to show that there was no fraud or gross or wilful neglect on the part of the assessee in not returning the correct income stands vitiated as the same is based on no evidence ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was no concealment of income on the part of the assessee and in cancelling the penalty imposed under Section 271(1)(c) ?" We have heard Mr. Chand Raj Mehta, learned advocate for the Revenue, and Mr. Rajesh Balia, learned counsel for the assessee. ;