1969 (12) TMI 19 - HC - Income Tax

High Court Rules on Notice Service & Penalty Orders

The High Court deemed the reference on the service of notice under section 28(3) to all partners as incompetent. The Tribunal's finding of no deliberate ... Penalty - partners contended that no penalty was leviable on a dissolved firm and that there was no concealment of income by it, inasmuch as the firm had filed a revised return disclosing its entire income - held that penalty levied under section 28(1)(c) was not justified Issues Involved:1. Service of notice under section 28(3) on all partners of a dissolved firm.2. Concealment of income in view of the revised return filed by the assessee.3. Power of the Appellate Tribunal to determine the quantum of penalty when cancelling the penalty order.Issue-wise Detailed Analysis:1. Service of Notice Under Section 28(3) on All Partners of a Dissolved Firm:The Tribunal held that the penalty order is not vitiated for want of notice on the partner, Jagannathan, and that service of notice on some of the partners was sufficient compliance with the requirements of section 28(3) of the Act. The High Court agreed with the decision of this court in Commissioner of Income-tax v. Rathnam Nadar, stating that the reference so far as it relates to the above question is incompetent and cannot be answered by this court. The court held that the High Court's jurisdiction under section 66(2) is conditional on an application under section 66(1) and the absence of such an application would be a complete bar to entertain a reference on a question of law at the instance of the assessee.2. Concealment of Income in View of the Revised Return Filed by the Assessee:The Tribunal noted that the departmental officers had accepted the assessee's case that all the deposits in the banks had already been credited in the sales account except the sum of Rs. 28,618, which had been divided between the three partners without showing it in the bills, and without the knowledge of the other two partners. The Tribunal held that the conduct of the assessee in filing a revised return bringing in the entire excess sale proceeds divided between three partners without bringing it into the sales account should be taken into consideration in applying the provisions of section 28(1)(c) of the Act. The Tribunal concluded that the Income-tax Officer was not justified in ignoring the revised return for the purpose of determining whether there was concealment of income by the assessee. The Tribunal referred to the assessment order as also the appellate order of the departmental officers and expressed that the suppressed sale proceeds amounted to Rs. 28,618 only, as all the other bank deposits had been credited to the sales account. The High Court agreed with the Tribunal's view, stating that the explanation offered by the assessee for not disclosing the sum of Rs. 28,618 in the first return is possible of acceptance and in the face of such acceptable explanation, a deliberate intention on the part of the assessee-firm to conceal the income cannot be inferred.3. Power of the Appellate Tribunal to Determine the Quantum of Penalty When Cancelling the Penalty Order:The Tribunal expressed the view that, if a penalty is in law leviable, in the circumstances of the case, the penalty of Rs. 60,000 levied in this case was quite excessive and that 20% of the tax sought to be evaded will meet the ends of justice. In that view, it fixed a penalty of Rs. 12,000 as fair and reasonable. The High Court held that the Tribunal, being the final fact-finding authority, has to consider and decide all the issues that are brought before it. It cannot decide only one issue arising out of the many issues and decline to go into the other issues raised before it on the ground that the further issues will not arise in view of the finding on the issue decided by it. The court emphasized that the subordinate courts and the tribunals should avoid disposing of the matters on preliminary issues alone, without deciding all the issues raised before them. Therefore, the High Court found no point in the contention raised by the revenue and answered the question against the revenue and in favor of the assessee.Conclusion:- The High Court held that the reference regarding the service of notice under section 28(3) on all partners is incompetent.- The Tribunal's decision that there was no deliberate concealment of income by the assessee in view of the revised return was upheld.- The Tribunal's power to determine the quantum of penalty while cancelling the penalty order was affirmed.