TaxTMI 
TaxTMI 
1986 (4) TMI 6
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....1922 (hereinafter referred to as the old Act). The assessee returned a loss of Rs. 30,519. The Incometax Officer calculated the loss at Rs. 33,608, which was unabsorbed depreciation which was to be carried forward. This assessment was made on February 19, 1959. The assessment order has been annexed and has been marked as annexure A forming part of the statement of the case. The Income-tax Officer issued a notice dated October 9, 1967, under section 148 of the Act which was served on the assessee by registered post. The assessee again filed a return of income on February 26, 1968, declaring the total loss at Rs. 30,519 as was shown in the original return. The Income-tax Officer found the following cash credits in the account books of the assessee : Date Name to which entries relate Amount ------------------------------------------------------------------------------------------------------------------------------------------------ Rs. January 2, 1958 M/s. Sri Kishan Ghanshyam Das, Calcutta 29,000 February 5, 1958 M/s. Ramkrishna Shyam Sunder, Calcutta 31,000 February 24, 1958 do. 29,000 Thus the total credits came to Rs. 89,000. The Income-tax Officer asked t....
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....rtment has failed to discharge the onus and so penalty was not leviable under section 271(1)(c) of the Act. The Inspecting Assistant Commissioner found that the original assessment was made on the loss of Rs. 30,764 and as income had escaped assessment, the Income-tax Officer took action under section 147 and the reassessment was completed on March 17, 1971 and in the reassessment the credit of Rs. 89,000 was treated as the assessee's income, which addition of Rs. 89,000 was confirmed by the Appellate Assistant Commissioner, who dismissed the appeal. The Inspecting Assistant Commissioner agreed with the Appellate Assistant Commissioner that income had escaped assessment on account of omission on the part of the assessee to disclose true facts-at the time of original assessment. The Inspecting Assistant Commissioner has pointed out that the assessee did not prove that the credits were genuine. He also found that there was material to show that the transactions were not genuine and the notice issued by the; Income-tax Officer to the parties at the addresses given by the assessee also remained unserved as the parties were not available at those addresses. The Inspecting Assistant C....
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....unal also held that even if the assessee is guilty of no default in proceedings under section 147 of the Act, a penalty may still be imposed in such proceedings in respect of the original default committed by the assessee while filing the original return. The Tribunal took the view that the provisions for imposition of penalty in this case will be applicable as it was on the date of the filing of the original return and so the case was covered by the Supreme Court decision in CIT v. Anwar Ali [1970] 76 ITR 696. The Tribunal also considered the Explanation to section 271 (1)(c) of the Act and held that under the Explanation, the burden on the assessee is of a negative nature and can be discharged if there is nothing positive to show that the assessee committed fraud or gross or wilful neglect in returning its correct income and that there is no such material on record. The Tribunal held that the order of the Inspecting Assistant Commissioner shows that he has proceeded merely on the basis of the assessment order, without bringing any further material on record in support of his coming to the conclusion that the disputed amount was in fact the income of the assessee for the year u....
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....ether, on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that Rs. 89,000 was to be added as the assessee's income from undisclosed sources ?" This court in the aforesaid taxation cases held that the cash credits of Rs. 89,000 were not genuine and the addition as income from undisclosed sources in the assessment year 1958-59 was upheld. It was also held that the reassessment proceeding under section 147(a) of the Act was legal and valid. Mr. K. N. Jain, learned advocate for the assessee, has relied on the case of Brij Mohan v. CIT [1979] 120 ITR 1 which is a Supreme Court decision. In this case, the assessee who was a partner in two firms filed his return of income for the assessment year 1964-65 on April 24, 1968, in which he disclosed only his share in the profits of one of them and had not included his share in the profits of the other and so penalty proceedings were initiated under section 271(1)(c) of the Act and in those circumstances it was held by their Lordships of the Supreme Court that when penalty is imposed for concealment of particulars of income, it is the law ruling at the date on which the act of concealm....
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....a notice under section 148 was served on him in respect of those years and on the basis of the returns submitted, assessment was completed and penalty proceedings were initiated. The Tribunal imposed penalties by applying section 271 as it stood prior to April 1, 1968, and in those circumstances it was held that the Tribunal was correct in its decision to impose a minimum penalty for each of the two assessment years in question by applying the law which was in force at the time when the assessee filed his original return. Thus, in this case, although a return was filed in pursuance of the notice under section 148 of the Act, it was held that the penalty could be imposed on the basis of the original return. Mr. K. N. Jain has relied on the case of CIT v. S. S. K. G. Arthanari Swamy Chettiar [1982] 136 ITR 145, which is a decision of the Madras High Court, where it has been held that the provisions of the Act contemplate concealment in the original return filed under section 139 alone and penalty has to be imposed with reference to that concealment. It has also been held that the subsequent revised returns filed only enable the officer to determine the real income of the assessee ....
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....ection 139(5) or section 148 in which the act of concealment may be repeated will not alter the position. It has also been held in this decision that the basic obligation of an assessee is only one, viz., to file proper and correct return of income for a particular assessment year and it is appropriate that the offence should be co-related to the point of time when the first return is filed in which concealment took place and any subsequent returns, though they may, in a sense, be said to be repetitions of the concealment, should be left out of consideration and that it is the law on the date of the first return in which the income is concealed that should govern the calculations for levy of penalty. It has also been held in the case of CIT v. Ram Achal Ram Sewak [1977] 106 ITR 144, by the Allahabad High Court that the relevant return for the purposes of section 271 of the Act is the original return and not any return filed subsequent thereto and that the Tribunal was legally correct in holding that the provision of section 271(1)(c) and the Explanation thereto were not attracted in respect of the assessment year under consideration as the original return was filed before April ....
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.... of concealment of income and that neither in law nor on the authority nor on first principles can it be said that the same offence is committed again and again. It also appears from this decision of the Punjab and Haryana High Court that it was contended for the Revenue that if another return is filed by the assessee in pursuance of a notice under section 148 of the Act, then only the subsequent return should be looked into for all practical purposes under the Act. It was also contended that, if in the return filed in pursuance of a notice under section 148 of the Act, instead of concealment of Rs.1 lakh, which was made in the original return, the assessee makes a concealment of Rs. 50,000 or makes no concealment, the assessee would be liable to penalty on the basis of the original return and it will be open to the Income-tax Officer to ignore the subsequent return, that is to say, it is for the Income-tax Officer to choose any return in the case of a given assessee and impose penalty on the basis of the law as it was applicable on the date of the filing of the return, whether the original return or subsequent return. In this connection, it was observed by the Full Bench of the Pu....
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....es the provision under section 147(a) and issues a notice under section 148 of the Act, the assessee may submit a revised return, which might be the samp as the assessee filed in the first instance and it could also be that the revised return makes a partial or full disclosure of the income concealed at the time when he filed the first return under section 139. It was also held by the Full Bench of the Kerala High Court that the penalty proceedings had to be completed in accordance with the provisions of section 271 as it stood at the time when the assessee filed the first return under section 139 of the Act. It appears that the Punjab and Haryana High Court and the Kerala High Court in the Full Bench decisions have accepted the reasoning of the Delhi High Court in the case reported in Addl. CIT v. Joginder Singh [1985] 151 ITR 93. I have already pointed out that the view taken by the Patna High Court in the decision, CIT v. Parmanand Advani [1979] 119 ITR 464, is not the correct legal view in view of the Supreme Court decision in Brij Mohan v. CIT [1979] 120 ITR 1, where it was held by the Patna High Court, that the material event was not the filing of the return but the sat....
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....to the reference were initiated in connection with the return filed in response to the notice under section. 148 of the Act and the Tribunal, therefore, was not right in holding that the default would be attributable to the return filed in the original assessment proceedings when the concealment was in the revised return. It was also held in this decision that the wrongful act took place on December 21, 1969, when the return in response to the notice under section 148 was filed by the assessee and the Tribunal was, therefore, not right in holding that the law applicable to the imposition of penalty was that contained in section 271(1)(c) prior to its amendment with effect from April 1, 1968. In the case of CIT v. Monghyr Gum Manufacturing Co-operative Society Ltd. [1984] 147 ITR 649, which is a decision of the Patna High Court, the assessee had filed several returns and one of the revised returns was filed on July 12, 1969, and as this return had been filed after April 1, 1968, the Inspecting Assistant Commissioner held that the minimum penalty imposable was equal to the amount of concealment and he, therefore, imposed a penalty of Rs. 20,000. In those circumstances, the Patna H....
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.... (sic) that in section 2(8) of the Act " assessment " includes reassessment can never mean a reassessment which was itself commenced under section 297(2)(d)(ii) of the Act. He has also pointed out that section 297(2)(d) clearly lays down that where in respect of any assessment year after the year ending on the 31st day of March, 1940, (i) a notice under section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed. Whereas, under section 297(2)(d)(ii), any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly. On this basis, Mr. K. N. Jain has argued that if the reassessment proceeding under section 34 of the old Act had already commenced for the period covered by the old Ac....
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....97(2)(d)(ii) of the Act. Mr. K. N. Jain has also relied on the case of Govinddas v. ITO [1976] 103 ITR 123, which is a decision of the Supreme Court, where it has been observed that the words " all the provisions of this Act shall apply accordingly " in clause (ii) of section 297(2)(d) of the Act, merely refer to the machinery provided in the Act for the assessment of escaped income, and they do not import any substantive provisions of the Act which create rights or liabilities and that the word " accordingly " in the context means nothing more than " for the purpose of assessment " and it clearly suggests that the provisions of the Act which are made applicable are those relating to the machinery of assessment. It has also been held by their Lordships of the Supreme Court that the substantive law to be applied for determining the liability to tax must necessarily be the law under the old Act, for that is the law which applied during the relevant assessment years and it is that law which must govern the liability of the parties. It has also been observed in this decision that it is a well-settled rule of interpretation that unless the terms of a statute expressly so provide or n....
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....Supreme Court have also laid down that before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. In the case of Anwar Ali [1970] 76 ITR 696 (SC), while making assessment on the respondent for the assessment year 1947-48, the Income-tax Officer discovered an undisclosed bank account of the respondent in which a cash deposit of Rs. 87,000 had been made. According to the respondent's explanation, that sum represented diverse amounts entrusted to him by his relatives who had got panicky during the communal riots in Bihar in 1946. The Income-tax Officer rejected the explanation and brought the sum of Rs. 87,000 to tax as his income from undisclosed sources. Thereafter, penalty of Rs. 66,000 was imposed on the respondent under section 28(1)(c) of the old Act for concealment of particulars of his income. On appeal, the Tribunal held that no penalty could be imposed, on the ground that the onus lay upon the Department to show by adequate evidence that the amount of cash was ....
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....all not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income." Under section 28(1)(c) of the Act, in the case of concealment of particulars of income or deliberate furnishing of inaccurate particulars of such income by a person, penalty could be, in addition to any tax payable by him, a sum not exceeding one and a half times the amount of incometax and super-tax, if any, which would have been avoided if the income as returned by such person bad been accepted as the correct income. Again on February 26, 1968, the following Explanation to section 27 l(1) of the Act was applicable: " Explanation.-Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the corr....
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....the return was filed before the original assessment was made on February 19, 1959, and so the penalty proceeding has to be governed by the old Act, then it has to be held that the case has to be governed by the decision in the case of CIT v. Anwar Ali [1970] 76 ITR 696. 1 have already discussed this decision in paragraph 29 of this judgment. I have already discussed above that in view of the various decisions mentioned above, the view taken in Taxation Case No. 40 of 1975 (sic) is not the correct view and that matter is still pending before a third judge and has not yet been finally disposed of. It also cannot be doubted that the assessee had filed confirmatory letters relating to the cash credit which have been added to the extent of Rs. 89,000 and in the assessment proceedings the assessee failed to produce the evidence to prove the genuineness of the cash credit, but in view of the decision in CIT v. Anwar Ali [1970] 76 ITR 696, it has to be held that in this case, the burden under section 28(1)(c) of the old Act is on the Department to establish that the receipt of the amount in dispute constitutes income of the assessee and that the assessee has consciously concealed the pa....
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....has not been overruled. 1, therefore, hold that the offence under section 271(1)(a) is different from the offence under section 271(l)(c) and as long as the decision of their Lordships of the Supreme Court in Brij Mohan v. CIT [1979] 120 ITR 1 is not overruled, it is binding. In view of my findings above, I hold that the Tribunal was right in cancelling the penalty of Rs. 15,000 imposed under section 271 (1)(c) of the Act by the Inspecting Assistant Commissioner. The question referred to us is, therefore, answered in the affirmative and in favour of the assessee and against the Revenue. However, in the peculiar circumstances of the case, the parties will bear their own costs. UDAY SINHA J.-I have had the benefit of going through the judgment of N. Ahmad J. I regret my inability to agree with the conclusions in his judgment. The facts have been over succinctly brought out in his judgment. I shall, therefore, refrain from stating the facts once again. Suffice it to observe that the assessee was assessed for the assessment year 1958-59 on February 19, 1959 at a loss of Rs. 33,608. Subsequently, it was detected that there were certain cash credits in the accounts of the assessee ....
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.... of that conclusion, the Tribunal held that the Department had not produced any extra materials to discharge the onus upon it for proving that there had been concealment of income by the assessee. In their view, since no fresh material had been brought on record, the Department had failed to discharge its onus. That made the Department ask for a reference to this court. The application under section 256(1) not having found favour with the Tribunal, this court called for the reference under section 256(2) of the Act. The first question which has to be answered in this reference is whether the question of levy of penalty will be decided upon the law as it existed on March 17, 1971, when the assessment under section 147 was completed and the satisfaction of the assessing officer was arrived at that there was a case for penalty. If the matter has to be determined on the basis of the law as it existed on March 17, 1971, the Explanation to section 271(1)(c) enacted in 1964 will become relevant and the case of Anwar Ali [1970] 76 ITR 696 will become irrelevant. If, however, the matter has to be determined in terms of the law as it stood when the assessee filed his incorrect return in w....
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....e Supreme Court in this case. It observed (p. 116): "There can be no manner of doubt that penalty has to be calculated and imposed according to the tax assessed. It follows that imposition of penalty can take place only after assessment has been completed. For this reason there was every justification for providing in clauses (f) and (g) (of section 297(2) ) that the date of the completion of the assessment would be determinative of the enactment under which the proceedings for penalty were to be held." And further (at p. 116): " It is obvious that for the imposition of penalty it is not the assessment year or the date of the filing of the return which is important but it is the satisfaction of the income-tax authorities that a default has been committed by the assessee which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction is reached, the scheme of sections 274(1) and 275 of the Act of 1961, is that the order imposing penalty must be made after the completion of the assessment. The crucial date, therefore, for purposes of Penalty, is the date of such completion. " There could be no clearer exposition of law than that laid d....
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..... The Tribunal made a direct reference to the Supreme Court. The question referred to the Supreme Court was: " Whether, the Tribunal was, in law, right in sustaining the penalty of Rs. 2,955 by applying the provisions of section 271(1)(c)(iii) of the Income-tax Act, 1961, as amended with effect from 1-4-1968 ? " Dealing with the above question, the Supreme Court observed in paragraph 6 as follows (p. 4): " The case of the assessee is that an assessment proceeding for the determination of the total income and the computation of the tax liability must ordinarily be made on the basis of the law prevailing during the assessment year, and inasmuch as concealment of income is concerned with the income relevant for assessment during the assessment year, any penalty imposed in respect of, concealment of such income must also be governed by the law pertaining to that assessment year. We are unable to accept the contention. In our opinion, the assessment of the total income and the computation of tax liability is a proceeding which, for that purpose, is governed by entirely different considerations from proceeding for penalty imposed for concealment of income. And this is so notwith....
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....ssessee to prove that failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. If he failed to show that the failure was not due to any fraud or gross or wilful neglect, the assessee must be held to have failed to discharge the onus placed upon him by law. The assessee must in that situation be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of clause (c) of section 271 (1). In this case, in the penalty proceeding, the assessee produced no material or circumstance to discharge the onus placed upon him. I am not for a moment suggesting that it was essential for the assessee to discharge the onus placed upon him by law by producing fresh materials. He could rely upon materials already on the record. But what was there on the record in favour of the assessee ? Nothing whatsoever. In that view of the matter and the presumption being against the assessee, there was no escape from the conclusion in the instant case that the assessee had concealed his income. I do not consider it essential to spell out the figures which had been concealed and the penalty leviable ....
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....tion of the assessee is not sufficient to hold that there has been concealment of income, but just as the assessee can rely upon materials already on the record and show that there had been no concealment, so can the Revenue rely upon the materials already on record to show that there bad been concealment by the assessee. Even by the standards laid down in Anwar Ali's case [1970] 76 ITR 696 (SC), the facts in the instant case show clearly that the assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of his income. Here was a case where the assessee had shown cash credits in his books to the tune of Rs. 89,000. The Department had come by tangible materials to show that there was a professional name-lender at Calcutta who was helping the assessee in creating fake cash credits. The assessee was called upon in reassessment proceeding to establish the cash credits. The assessee asserted that the cash credits were genuine and the creditors were genuine persons. The Revenue has brought materials on record to show that the so-called creditors were fake persons. A prudent person would expect the assessee to produce those individuals before....
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....Income-tax Appellate Tribunal, " B " Bench, Patna (hereinafter referred to as the " Tribunal "), to state a case and refer the following question for the decision of this court. " Whether, on the facts and in the circumstances of the case, the Tribunal was right in cancelling the penalty of Rs. 15,000 imposed under section 271(1)(c) of the Income-tax Act ? " The case was heard by the learned judges of a Division Bench. One of the learned judges, Nazir Ahmad J., answered the question in the affirmative and in favour of the assessee and against the Revenue; whereas, the other learned judge, Uday Sinha J., answered the question in the negative and in favour of the Revenue and against the assessee. In order to answer the question, the vital question involved in the instant case is whether the penalty proceeding has to be disposed of on the basis of law as it existed on March 17, 1971, when the reassessment was completed and the satisfaction of the assessing officer was arrived at that there, was a case for Penalty or it has to be determined in terms of the law as it stood on February 19, 1959 (under the old Act) when the original assessment was completed : in other words, whet....
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....otton Mills Ltd. [1986] 160 ITR 275) were disposed of by a Bench consisting of the same two learned judges who have differed in their opinion in the instant case and it would again be very very pertinent to state that my learned brother Nazir Ahmad I., in agreement with the conclusion arrived at by my other learned brother Uday Sinha J., held that the cash credits of Rs. 89,000 were not genuine and thus the addition as income from undisclosed sources in the assessment year 1958-59 was upheld. In other words, my learned brother Nazir Ahmad J, also held that the cash credits of Rs. 89,000 were the income of the assessee from undisclosed sources during the relevant assessment year. It was further held in the aforesaid two tax cases that the reassessment proceeding under section 147(a) of the Act was legal and right. Difference of 20% between the returned income and the assessed income having been found, proceedings for levy of penalty under section 271 (1)(c) of the Act were initiated by the Income-tax Officer with the approval of the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner did not accept the submission advanced on behalf of the assessee and h....
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....v. S. S. K. G. Arthanariswamy Chettiar [1982] 136 ITR 145, upon a decision of the Allahabad High Court in CIT v. Ram Achal Ram Sewak [1977] 106 ITR 144, upon a Full Bench case of the Punjab and Haryana High Court in CIT v. Ram Singh Harmohan Singh [1980] 121 ITR 381 and yet upon another Full Bench case of the Kerala High Court CIT v. C. P. Antony [1995] 155 ITR 467, held that the penalty proceeding, in the present case, was to be governed by the old Act as the return was filed before the original assessment was made on February 19, 1959, and not on the basis of the Explanation to section 271(1)(c) of the Act, and, thus, held that, in the present case, the penalty proceeding was governed by the decision in the case of CIT v. Anwar Ali [1970] 76 ITR 696 (SC). My learned brother Nazir Ahmad J. further held that the Patna High Court judgment in the case of CIT v. Parmanand Advani [1979] 119 ITR 464 did not lay down the correct law and was wrong. On the other hand, my learned brother Uday Sinha J., relying upon the judgment of the Supreme Court in the case of Jain Brothers v. Union of India [1970] 77 ITR 107 (judgment by five Hon'ble Judges) and also relying upon another Supreme C....
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.... in which the principles laid down in lain Brothers' case [1970] 77 ITR 107 have been followed. The question thus arises on the facts of the present case, as to which of the three Supreme Court cases (just referred to in the earlier paragraph) governs the present case. Learned counsel for the Department has contended that it is the date of satisfaction of the Income-tax Officer which is the starting point for initiating the penalty proceedings and it is the law as it existed on that date which is applicable to the penalty proceedings. He further contended that as, in the present case, the penalty proceedings started in respect of the return filed on February 26, 1968, the penalty proceedings were to be governed in respect of the return filed in the reassessment proceedings. Learned counsel further submitted that the Explanation to section 271(1)(c) (added on April 1, 1964) was purely procedural in nature prescribing a rule of evidence relating to burden of proof and hence irrespective of the date on which the offence is committed, the Explanation was attracted if the proceeding for punishing the offender was pending on the date when it came into force. It is submitted that th....
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.... penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place which is relevant. B is wholly immaterial that the income concealed was to be assessed in relation to an assessment year in the Past.... The concealment of the particulars of his income was effected by the assessee when he filed a return of total income on April 24, 1968. Accordingly, it is the substituted clause (iii), brought in by the Finance Act, 1968, which governs the case. That clause came into effect from April 1, 1968. " Though my learned brother Nazir Ahmad J. mentions about the lines which I have underlined above for emphasis, yet with all respect to my learned brother, he has just missed to appreciate the impact of that observation in Brij Mohan's case [1979] 120 ITR 1. I would, at the cost of repetition, quote those lines again (at page 4): " It is wholly immaterial that the income concealed was to be assessed in relation to an assessment year in the past." Thus, speaking for myself, I feel that the case reported in Brij Mohan [1979] 120 ITR I supports the department's stand and not the stand of the assessee. My learned brot....
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....t issue in the instant case and is thus clearly distinguishable. Then with regard to the other Patna case, CIT v. Lalji Ram Bhagat [1984] 147 ITR 645, my learned brother Nazir Ahmad J. does not say that it has been wrongly decided. Dealing with the Patna cases (referred to above), he just observes that the Patna High Court decisions have taken three different views. In my opinion, it is not so. I have already dealt with the two Patna cases earlier and Lalji Ram Bhagat's case [1984] 147 ITR 645 is directly on the point involved in the instant case. Facts are absolutely similar and the Patna High Court in Lalji Ram Bhagat's case [1984] 147 ITR 645 held that the relevant date for the purpose of determining the quantum of penalty would be the date on which the delinquency was committed, namely, when the return or revised return was filed and since the revised return was filed on July 12, 1969, the quantum of penalty would be governed by the provision of law which was in force from April J, 1968. The Supreme Court judgment in the case of Jain Brothers [1970] 77 ITR 107 (judgment by five hon'ble judges) has been dealt with by my learned brother Nazir Ahmad J., in paragraph 26 of hi....