ORDER
R.K. Bali, Accountant Member
1. This is an appeal by the assessee against the order dated 2-1-1990 passed by the CIT(A), Chandigarh.
2. Briefly, the facts are that the assessee-firm, which is engaged in the business of manufacture and sale of RCC Spun Pipes, filed its return of income for the assessment year 1979-80 on 31-10-1979 showing a loss of Rs. 1,54,360. Original assessment was completed on 19-3-1982 under Section 144 of the Income-tax Act which was subsequently reopened under Section 146 vide order dated 29-6-1982 passed by the Assessing Officer. After reopening the assessment, the following cash credits were noticed while examining the balance-sheet :-
(i) Rs. 1,00,000 in the name of Sh. Pradeep Gupta,
(ii) Rs. 1,00,000 in the name of M/s. Bharat International,
(iii) Rs. 14,000 in the name of Shri Brij Mohan ; and
(iv) Rs. 10,140 in the name of M/s. Himachal Rang Udyog.
The AO asked the assessee to prove the genuineness of these credits by producing the books of accounts. However, the books of accounts and other vouchers were not produced on the plea that these have been lost. However, the assessee furnished certificate in the form of confirmatory letters in respect of the cash credits whose genuineness was required to be proved by the AO. The AO asked the assessee to give complete addresses of the creditors or produce them for verification of the credit. In response to the above query from the AO, the assessee furnished a written explanation stating that the amount credited in the name of three persons, namely, Rs. 1,00,000 each in the names of Shri Pradeep Gupta and M/s. Bharat International and Rs. 14,000 in the name of Shri Brij Mohan, were, in fact, received by the assessee from M/s. Kuldip Industrial Corpn. with the instructions that these amounts may be credited in the names of the persons mentioned against each and M/s. Kuldip Industrial Corpn. also sent the assessee the three certificates which were submitted by the assessee to the AO. However, when the assessee requested M/s. Kuldip Industrial Corpn. to give the complete addresses of the persons to be furnished to the AO, M/s. Kuldip Industrial Corpn. intimated the assessee that the amount of Rs. 2,14,000 credited by the assessee in the names of the aforesaid three persons in fact was the undisclosed income of M/s Kuldip Industrial Corpn. earned in the assessment years 1976-77 to 1978-79 which was kept out of the books and which has since been disclosed in the statement of facts submitted by M/s. Kuldip Industrial Corpn. before the Settlement Commission. The AO, however, did not accept the explanation of the assessee and held that the amount of Rs. 2,14,000 plus Rs. 10,140 credited in the name of M/s. Himachal Rang Udyog represented the assessee’s income from undisclosed sources which was introduced in the garb of fictitious credits. Besides, the above, the AO also made certain additions to the returned income on account of lesser GP shown in the trading account and further disallowances out of travelling, car maintenance expenses and interest payable to partners. The income was finally computed by the AO at Rs. 98,530 vide order dated 29-3-1935 under Section 144. The AO also initiated penalty proceedings under Section 271(1)(c) of the Act.
3. The assessee filed appeal against the order of the AO passed under Section 144 on 29-3-1985 and the DCIT(A), vide order dated 30-8-1988, allowed a relief of Rs. 33,879 to the assessee and the income was finally computed at Rs. 64,651 after giving appeal effect to the DCIT(A)’s order dated 30-8-1988. The DCIT(A), however, confirmed the addition on account of cash credits amounting to Rs. 2,24,140.
4. The assessee filed further appeal before the Tribunal and the Tribunal vide order dated 17-2-1993 in ITA No. 867 allowed a further relief of Rs. 2,000. However, with regard to the cash credits totalling Rs. 2,24,140 which have been upheld by the DCIT(A), the Tribunal upheld the addition in relation to the three credits of Rs. 2,14,000 in the names of Shri Pradeep Gupta (Rs. 1,00,000), Bharat International (Rs. 1,00,000) and Shri Brij Mohan (Rs. 14,000) and with regard to the credit of Rs. 10,140 in the name of M/s. Himachal Rang Udyog, the matter was restored to the file of the AO with the direction that he should verify as to whether this amount represented an opening balance. If it was so, then the addition was to be deleted and if it was a fresh amount introduced in the year under consideration, then the addition was to be confirmed as the assessee has not furnished any explanation to prove the genuineness of this credit. The Tribunal in ITA Nos. 85, 86 & 87/Chandi/88 relating to assessment year 1979-80 in respect of penalties imposed by the departmental authorities under Sections 271(1)(c), 271(1)(b) and 273(1)(b), which were disposed of by the common order along with ITA No. 867/Chandi/88 in the quantum appeal vide order dated 17-2-1993, upheld the levy of penalty but directed that the minimum penalty as levied by the AO should be recomputed on the basis of income finally assessed after giving appeal effect to the Tribunal’s order.
5. The reference application filed by the assessee under Section 256(1) was rejected by the Tribunal and no petition under Section 256(2) has been filed by the assessee against the order of the Tribunal dated 17-2-1993 and as such the Tribunal’s order in the quantum appeal has become final.
6. The AO, in the course of penalty proceedings, held the assessee guilty of concealment of income in relation to the amount of Rs. 2,24,140 which was added by the AO on account of unexplained cash credits under Section 68 vide order dated 28-2-1989. The AO considered the quantity of income concealed for the purpose of levy of penalty under Section 271(1)(c), the amount of Rs. 2,24,140 and since the tax sought to be evaded on the above income was Rs. 1,30,740, the AO levied the minimum penalty of Rs. 1,30,740.
7. The assessee filed appeal against the order passed by the AO under Section 271(1)(c) and the ld. CIT(A) vide order dated 2-1-1990 upheld the action of the AO in levying the penalty but directed that the penalty should be levied in relation to the concealed income represented by three cash credits of Rs. 1,00,000, Rs. 1,00,000 and Rs. 14,000 in the names of Sh. Pradeep Gupta, M/s. Bharat International and Shri Brij Mohan respectively and allowed partial relief to the assessee.
8. The assessee is in second appeal before us against the order of ld. CIT(A) dated 2-1-1990. Before us, Shri D.S. Gupta, the ld. counsel for the assessee, has challenged the levy of penalty on factual as well as legal grounds. It was submitted by Shri D.S. Gupta that simply because certain additions on account of cash credits were made by the AO by invoking the provisions of Section 68, which have since been confirmed by the Tribunal, it will not make the assessee guilty of concealment of income in relation to the cash credits added. It was submitted that it is for the revenue to prove by positive evidence that the assessee has in fact concealed the income represented by the cash credits added in the quantum assessment. It was further submitted that the AO has nowhere mentioned that which Explanation, i.e., Explanation (A) or Explanation (B), inserted below Section 271(1)(c) w.e.f. 1-4-1976 has been invoked by the AO for imposing penalty under Section 271(1)(c) and there is no mention that the AO is invoking the Explanation in the assessment order while initiating the proceedings. It was submitted that since the charge against the assessee culminating in the levy of penalty under Section 271 (1)(c) was not precisely intimated to the assessee, the order passed by the AO was bad in law.
Reliance was placed on the decision of Hon’ble Bombay High Court in the case of CIT v. Dharamchand L. Shah [1993] 204 ITR 462. Shri Gupta also relied on the decision of the Hon’ble Madras High Court in the case of CIT v. V. Ramaswamy Naidu [1994] 208 ITR 377, for the proposition that if only the explanation of the assessee is disbelieved, it cannot be a conclusive proof of concealment of income. He accordingly submitted that the penalty as sustained by the ld. CIT(A) should be deleted. Alternatively, Shri D.S. Gupta pleaded that in view of Explanation 4 to Section 271 (1)(c), the penalty has to be levied on the basis of the income as finally assessed and since in this case the income finally determined after giving appeal effect to the Tribunal’s order was only a sum of Rs. 62,651, subject to verification of another amount of Rs. 10,140 relating to the credit in the name of M/s. Himachal Rang Udyog, the penalty should be calculated only on the basis of the income as finally assessed/Reliance was placed on the observations of the Hon’ble Punjab and Haryana High Court in the case of CIT v. Prithipal Singh & Co. [1990] 183 ITR 69, as also the decision of the Hon’ble Madhya Pradesh High Court in the case of CIT v. Jaora Oil Mill [1981] 129 ITR 423.
9. Shri K.S. Minhas, the ld. D.R., on the other hand, supported the order of the ld. CIT(A) and further submitted that this is the case of an assessee who has introduced its own concealed income in the name of fictitious persons and when he was called upon to explain the source of these credits, the assessee invented a fictitious story which had been found to be false by the CIT(A) as well as the Tribunal in the quantum appeal wherein the addition to the extent of Rs. 2,14,000 in the names of the three parties aforementioned has been confirmed and the order of the Tribunal having become final, the departmental authorities were fully justified in levying the penalty in relation to the concealed income of Rs. 2,14,000.
10. We have considered the rival submissions and have also gone through the orders passed by the AO, DCIT(A) and the Tribunal in the quantum appeal as also the impugned order of the ld. CIT(A) wherein the penalty levied by the AO has been partially upheld. Clause (iii) of Section 271(1) of the Income-tax Act, 1961 uses the words “amount of income”. The word “income” has been defined in Section 2(24) of the Act. It is an inclusive definition and it takes into its fold not only the real income but also such items which are not incomes in the natural sense of the word. In Section 4, which is the charging section, it is nowhere stated that “income” includes loss. It is also significant to note that wherever it is necessary to consider loss as income, the Act specifically states so, as can be seen from Explanation 2 to Section 64. On the other hand, in Sections 271(1)(c) and 271(1)(iii) it is not stated anywhere’ that income includes loss. Thus the word “income” in Clauses (c) and (iii) of Section 271(1) of the Act refers to positive income only. Explanations 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question.
11. In the present case, admittedly, the assessee has filed a return declaring loss of Rs. 1,54,360 and the income finally determined after giving appeal effect to the Tribunal’s order was Rs. 62,651 subject to verification in relation to a further amount of Rs. 10,140. In almost similar circumstances, Hon’ble Madhya Pradesh High Court, in the case of Jaora Oil Mill (supra), held that the penalty has to be levied in relation to the income finally computed. In the case decided by the Hon’ble Madhya Pradesh High Court, the assessee returned a loss of Rs. 2 lakhs. On the assessee’s failure to produce the books of accounts, the ITO completed the assessment under Section 144 and computed the total income at Rs. 50,000. Penalty proceedings were initiated and the AO held that inasmuch as the assessee had shown a loss of Rs. 2 lakhs whereas its income was computed at Rs. 50,000, the entire sum of Rs. 2,50,000 was the concealed income of the assessee and accordingly, the AO levied penalty of Rs. 2,50,000. On appeal, the Tribunal held that the income concealed was the income actually determined, i.e., Rs. 50,000 and the order of the Tribunal was upheld by the Hon’ble High Court who held that the income which was determined by the AO under Section 144 was the sum of Rs. 50,000 and it was that income which was concealed by the assessee. Applying the ratio of the above decision to the facts of the present case, we will hold that the penalty has to be levied only in relation to the income which has been finally determined after giving appeal effect to the Tribunal’s order. We direct accordingly.
12. We may point out that the above view which we have taken is also supported by the analogy of the decision of the Hon’ble Punjab and Haryana High Court in the case of Prithipal Singh & Co. [supra), wherein the Hon’ble High Court held that if the income finally determined was loss, no penalty under Section 271 (1)(c) can be levied. The above view which we have taken is also supported by the decision of the Hon’ble Supreme Court in the case of G.C. Agarwal v. CIT [1990] 186 ITR 571, in which decision the Hon’ble Supreme Court upheld the decision of the Hon’ble Guahati High Court in the case of F.C. Agarwal v. CIT [1976] 102 ITR 408, wherein for the purpose of calculation of penalty, the difference between the tax on the income shown in the return and the tax on the income assessed was directed to be taken as the amount of tax that would have been avoided.
13. Before parting, we may mention that the reliance of Shri D.S. Gupta, the ld. counsel for the assessee, on the decision of the Hon’ble Bombay High Court in the case of Dharamchand L. Shah (supra), is misplaced as that case relates to the Explanation which was in force from 1-4-1964 to 31-3-1976 and there are decisions in favour of the revenue by the Hon’ble Gujarat High Court in the cases of CIT v. Drapco Electric Corporation [1980] 122 ITR 341 and Kantilal Manilal v. CIT [1981] 130 ITR 411, wherein it is held that Explanation to Section 271(1)(c) being merely a rule of evidence, it is competent to the authority who imposes the penalty to invoke its aid in reaching the final conclusion on the question of concealment although it may not have been resorted to at the stage of initiation of proceedings. Anyway, the decisions of the Bombay High Court as well as Gujarat High Court related to the Explanation which was in force from 1-4-1964 to 31-3-1976 and it does not relate to the Explanation which was applicable in the case.of the assessee for assessment year 1978-79. Similarly, the reliance of Shri D.S. Gupta, the ld. counsel for the assessee, on the decision of Madras High Court in V. Ramaswamy Naidu’s case (supra) is distinguishable on facts as in that case only the explanation of the assessee was disbelieved whereas in the present case there is a finding by the Tribunal that the explanation given by the assessee that the amount earned by M/s. Kuldip Industrial Corpn. as concealed income was advanced to the assessee-firm was found to be not factually substantiated.
14. In the result, the appeal filed by the assessee is partly allowed.