Law: Income Tax Act, 1961

Section: 131

Income-tax----Penalty--Concealment of income--Cash credits--Creditors admitting loans-¬Income-tax Officer not believing creditors--No other material to prove concealment--Imposition of penalty is not valid. The assessee-firm had returned an income of Rs. 69,359 for the assessment year 1964-65. The Income-tax Officer, however, treated the cash credits standing in the names of K, H and S as the assessee's income from undisclosed sources on the ground that he was doubtful about the genuineness of the loans. These parties had stated, in response to the notices issued under section 131 of the Income Tax Act, 1961, that they had advanced loans to the assessee. Further, the Income-tax Officer disallowed the assessee's claim for deduction of Rs. 16.083 being the interest paid on the aforesaid loans and two other loans. The Income-tax Officer also imposed penalty on the assessee under section 271(1)(c) of the Indian Income Tax Act, 1961. The Tribunal cancelled the penalty. On a reference: Held, that, apart from disbelieving the explanation of the assessee, there was no other material to prove concealment of income. The question whether there has been concealment of income is purely a question of fact. It was found that the concerned creditors had responded to the summons issued under section 131 of the Indian Income Tax Act. All of them had confirmed that they had advanced loans to the assessee. The Tribunal upheld the allowance of interest to those loan creditors. The Tribunal was, therefore, justified in cancelling the penalty. CIT v. Anwar Ali (1970) 76 ITR 696 (SC) ref. JUDGMENT ART K. SENGUPTA, J: ---This reference under section 256(2) of the Income-tax Act, 1961, relates to the assessment year 1964-65. The following question of law has been referred to this Court: "Whether, on the facts and in the circumstances of the case, relating to the cash credits standing in the names of Sarbashree Kanhaiyalal Agarwalla, Haripada Kedia and Surajmal Ganeshram and the interest paid to these three parties and on a correct interpretation of the Explanation to section 271(1)(c) of the Income Tax Act, 1961, the Tribunal was justified in holding that no penalty could be imposed…

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