PREMJI HARIDAS AND CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN all, four questions have been referred to us for our opinion by the Tribunal at the instance of the assessee under S. 66(1) of the IT Act, 1922, viz.:

(2.) AT the outset it may be stated that Mr. Mehta, appearing for the assessee, has not pressed questions Nos. 1 and 3 in view of the fact that these have been covered by the decisions of the Supreme Court. In view of the decision of the Supreme Court in the case of Jain Brothers vs. Union of India reported in (1970) 77 ITR 107 (SC) question No. 1 is not pressed and, therefore, the same is not answered. Similarly, in view of the Supreme Court decision in the case of Mansukhlal & Brothers vs. CIT (1969) 73 ITR 546 (SC) question No. 3 is also not pressed and the same is not answered.

(3.) THE assessee, M/s Premji Haridas and Co., is a registered firm doing business in oil, oil seeds, raw wool and as commission agents and general financiers. Its partners in the relevant year of account were Shri Premji Velji, Shri Haridas Velji, Shri Chhaganlal Velji and Shri Jadhavji Velji. The question relates to asst. year 1954 55, the corresponding previous year being S. Y. 2009 (ending 6th November, 1953). In the original assessment of the firm that was made for the asst. year 1954 55 the total income of the firm was assessed at Rs. 3,79,805. This included two items, viz., Rs. 28,747 being profit from business done in the name of Chhaganlal Velji and Co. and Rs. 10,000 on account of bad debts, which claim was disallowed in the accounts of Meghji Jasraj and Thakersey Narsey (Rs. 5,000 each). It appears that by his order dated July 31, 1957, the ITO made these two additions of the aforesaid two amounts, the first one on the ground that the firm of Chhaganlal Velji & Co. was a benami concern of the assessee only and the profits arising from the business done in that name were really the profits of the assessee and the second item on the ground that the two amounts of Rs. 5,000 each were personal loans advanced to the parties concerned. As regards the addition made of Rs. 28,747 being the profit from the business done in the name of Chhaganlal Velji & Co., the ITO recorded a finding that the assessee firm had not disclosed the income from this source in its return and had committed a default within the meaning of S. 28(1) (c) and, therefore, directed that notice under S. 28(3) should be issued to the firm calling upon the firm to show cause why penalty proceedings should not be initiated. The matter was ultimately taken up to the Tribunal in I.T.A. No. 11700 of 1960 61 and the Tribunal, by its order dated March 2, 1962, confirmed addition or inclusion of the profits from the business of Chhaganlal Velji and Co. in the total income of the assessee. In regard to bad debts (which had been disallowed Rs. 5,000 each) the Tribunal set aside the assessment order of the ITO and remanded the matter to enable him to scrutinise the items taking into account the relevant facts and considering the claim according to law. Thereafter, the ITO made a fresh assessment on July 20, 1963, making an addition of Rs. 10,000 on account of bad debts once again. In other words, after examining the relevant material that was produced before him the ITO reiterated his earlier view that these items were required to be added or included in the income of the assessee. While passing his assessment order dated July 20, 1963, he directed that notice under S. 274(1) for default under S. 271(1)(c) for furnishing wrong particulars be issued. On July 25, 1963, a regular notice to show cause why the penalty should not be imposed was issued and served on the assessee and the case was then referred to the IAC, who by his order dated May 5, 1965, levied a penalty of Rs. 18,000 under s. 271(1)(c) by reference to two items, Rs. 28,747 being profit in the name of Chhaganlal Velji and Co. and Rs.10,000 on account of bad debts. The question of disallowance of bad debts was, however, carried in appeal to the Tribunal and the Tribunal, by its order, directed deletion of that amount from the assessment. The assessee appealed to the Tribunal against the order of the IAC levying penalty challenging that order on several grounds. Inter alia, it was contended that in so far as penalty that was levied on account of inclusion of the profit of Rs. 28,747 in respect of business done in the name of Chhaganlal Velji & Co. was concerned, the Tribunal had confirmed the said inclusion which had been initially done by the ITO and, therefore, that inclusion had become final and in respect of that addition the assessment was complete by reason of the ITO's order dated July 31, 1957, and therefore, the penalty proceedings, if any, should have been initiated and completed under the old Act of 1922 and not under the new Act of 1961. This contention was negatived by the Tribunal principally on the ground that the Tribunal had by its order dated March 2, 1962, set aside the assessment order passed by the ITO and had sent the matter back to him to enable him to scrutinise the item in regard to bad debts after taking into account the relevant facts and for considering the claim of the assessee according to law and, therefore, the penalty proceedings had been rightly initiated and concluded by the IAC under the 1961 Act. At the instance of the assessee question No. 4 set out at the commencement of the judgment has, therefore, been referred to us for our opinion.