COMMISSIONER OF INCOME TAX Vs. NOVELTY BAR AND RESTAURANT

JUDGEMENT

(1.) THIS is a reference under Section 256(2) of the I.T. Act. The question falling for consideration and which has been referred to this court is :

(2.) THE assessee is a partnership firm, the partners being Dwarka Das, Karamchand Kulier and Meharchand Kulier. While assessing for the year 1968-69 (A.Y.), the ITO found that the assessee had introduced a sum of Rs. 1,10,000 in the business and had deposited it in the names of the three partners in equal proportion. THE assessee explained it by contending that the partners had agricultural properties at their native place, Sarala, in the State of Punjab which had been sold for Rs. 1,00,000. Copies of the registered deeds were filed in support of this stand. THE sum of Rs. 10,000 was claimed to be sale proceeds of agricultural produce of the lands which had been sold. THE aforesaid sums had been received by two bank drafts--one for Rs. 1,00,000 and another for Rs. 10,000. THE ITO accepted the explanation of the assessee in regard to the receipt of Rs. 1,00,000 being the value of lands sold and which had been transmitted to the partners by bank draft. He, however, did not accept the explanation of the assessee in regard to Rs. 10,000 being receipt from the sale proceeds of agricultural produce of lands which had been sold under three deeds. THE said sum of Rs. 10,000 was added as income of the assessee and assessed as such. THE order of the ITO is annexure A to the statement of the case. THE assessee agitated against the adding back of the said sum of Rs. 10,000 in appeal and before the Tribunal, but without any success.

(3.) THE Tribunal has observed in paragraph 5 of its order (annexure-C) that the addition of Rs. 10,000 was made by rejecting an explanation given by the assessee regarding the source of his credits. THE Tribunal seemed to be labouring under the impression that mere rejection of an explanation is not sufficient to impose the liability of a penalty. In making that observation, it is obvious that the Tribunal was following the law laid down in Anwar Ali's case [1970] 76 ITR 696 (SC). If the explanation was not probable by any standard, the Revenue was fully justified in rejecting his explanation and proceeding to levy penalty. THE view of law propounded by the Tribunal was clearly erroneous.