TaxTMI 
TaxTMI 
1993 (9) TMI 144
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....wly introduced section, no firm shall, at any time, have deposits from more than 25 depositors per partner, or, 250 depositors in all, excluding in either case depositors who were relatives of any of the partners. In case the deposits held by the firm were not in accordance with the above, then it was provided that before the expiry of a period of two years from the date of such commencement, the firm would repay such all the deposits as are necessary for bringing the number of depositors within the relative limits specified in that sub-section. This amendment was introduced by section 10 of Banking Laws (Amendment) Act, 1983. The business of the assessee was affected adversely very severely by the new law effective from 15th February, 1984. 4. The assessee filed return of income on 30th October, 1985 declaring a total loss of Rs. 6,80,84,980. Subsequently, a revised return was filed on 22nd February, 1988 declaring a loss of Rs. 6,84,70,200. The Assessing Officer passed an assessment order on 20th February, 1989 computing the total income on a positive figure of Rs. 14,32,05,200. Penalty proceedings were also initiated under section 271(1)(c) of the Act. 5. The additions made in....
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.... 8,05,21,087 4,51,693 Certificate (ii) Cumulative Fixed 16,10,38,054 21,77,84,577 5,67,46,523 Deposit ----------------------------------------------------------------------------------------------- Total : Rs. 5,71,98,216 ----------------------------------------------------------------------------------------------- 7. In view of the above, the Assessing Officer held that an amount of Rs. 5,71.98,216 was income from undisclosed sources and a....
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.... department thereafter in the above manner. 12. It was also submitted that penalty could not be levied because the finally assessed figure was a loss and not a positive income. Reliance was placed on certain decisions of the Tribunal, to which we will refer subsequently. However, the Assessing Officer did not accept the contention in view of the decision of the Kerala High Court in the case of CIT v. India Sea Foods [1976] 105 ITR 708. He finally held that the assessee had concealed the particulars of its income and also furnished inaccurate particulars and levied a penalty under section 271(1)(c) of the Act, amounting to Rs. 2,11,39,972 equal to 100 per cent of the tax on concealed income of Rs. 3,42,01,523. 13. The CIT(A) noted that it had been explained to the Assessing Officer that the total deposits in the various schemes had come down to Rs. 59,37.50,216 as on 31st December, 1984 from Rs. 68,55,42,527 as on 31st December, 1983 and this went to show that the assessee had not accepted any fresh deposits during the accounting year 1984. It was also submitted to the Assessing Officer that as per the amendment brought by the Banking Laws (Amendment) Act, 1983, effective from 1st....
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....ecision of the Kerala High Court in the case of India Sea Foods. The CIT(A) also relied on the decision of the Supreme Court in the case of Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484 where it was held that the word "income" includes not only those things which section 2(24) of the Act declares that it shall include but also such things as the word signifies according to its natural import. According to him, it followed from the charging provisions of the Act that the word "income" included losses also. He referred also to the decision of the Supreme Court in the case of CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 where it was held that loss is a negative profit and both positive and negative profits are of revenue character. 20. Finally, the CIT(A) referred to the directions of the CBDT dated 16th October, 1975. Directions had been given therein that the ITO should not initiate proceedings for imposition of penalty under section 271(1)(c) of the Act, where the return of income had been filed declaring total income on a positive figure but not exceeding the maximum amount which is not chargeable to income-tax. He observed that the orders relate to initiation of penalty ....
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....me to time are noticed. The various decisions should then be related to the law as it existed at the relevant time. 27. The following chart gives a comparative account of the relevant parts Section 28(1) of the Indian Income-Act, 1922 Section 271(1) of the Income-tax Act, 1961 Section 28(1) : If the Income-tax Section 271(1) : If the Income-tax Officer, the Appellate Assistant Officer, or the Appellate Assistant Commissioner or the Appellate Tri- Commissioner in the course of any bunal, in the course of any proceed- proceedings under this Act, is satis- ings under this Act, is satisfied that fied that any person, any person--- (a)...............................
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....bsp; the income as returned by such correct Income. person had been accepted as the correct income. From 1-4-1968 to 1-3-1976 sub-  ....
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.... been concealed or inaccurate parti- culars have been furnished. From 1-4-1976, sub-clause (iii) stood &n....
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....p; ment of particulars of his income or the furnishing of inaccurate par- ticulars of such income. 28. It will be seen from the above chart that under the Indian Income-tax Act, 1922, as well as under the 1961 Act, up to 31-3-1968, the imposition of penalty under section 28(1)(c)/271(1)(c) was tax-based and the measure of the penalty was the tax, if any, which would have been avoided. However, with effect from 1st April, 1968, the quantification of penalty was ....
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....Timber Depot [1978] 113 ITR 99, which dealt with the law as it existed prior to 1-4-1968. They have also relied on the judgment of the Madhya Pradesh High Court in the case of Jaora Oil Mill and, we have already seen that that decision was concerned with the assessment year 1968-69, when Explanation 4, below section 271(1)(c) of the Act was not in existence. Thus, the cases relied upon were really distinguishable if the changes in law were kept in view. 31. The next case relied upon is the decision of the Bombay Bench of the Tribunal in Mutual Plastics case. Here, the Tribunal was concerned with the assessment year 1979-80 but relied on the earlier law, as we have already discussed. 32. Reliance has also been placed on the judgment of the Punjab & Haryana High Court in the case of Prithipal Singh & Co. Here, the assessment year concerned was assessment year 1970-71 when Explanation 4, below section 271(1)(c) was not in existence. However, Explanations 3 and 4 were also taken into account in the following words : "Penalty imposed is paid in addition to the tax payable. When there is no tax payable, the question of any penalty does not arise. In fact, evasion of tax is the sine qu....
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.... part of the clause merely drew attention to the fact that penalty would be in addition to the tax payable by an assessee and the function was nothing more. Therefore, even if the tax payable by the assessee was nil, penalty may still be imposed on the assessee, if there is concealed income. 36. Dealing with the law effective from 1st April, 1976, it was observed that the Legislature was aware that there would be situations where even though income had been concealed by an assessee, there might be no tax payable on the finally determined income and, in such a case, the amount of tax sought to be evaded by reason of concealment would naturally be nil. Apparently, the Legislature did not want this situation to re-emerge and, so it brought Explanation 4, below section 271(1)(c) of the Act, giving the meaning to the expression "the amount of tax sought to be evaded". By virtue of clause (a), of Explanation 4, in case of total income being assessed at a loss, the penalty would have to be worked out on a hypothetical basis, taking the concealed income itself as the total income for that limited purpose and working out the tax thereon. 37. The learned Departmental Representative has fur....
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....concerned, keeping in view Explanation 4(a), below section 271(1)(c) of the Act, penalty can be levied under section 271(1)(c) even in a case where the returned income and the finally assessed income are losses. The preliminary objection of the assessee is, therefore, rejected. 40. The learned counsel for the assessee has raised another preliminary objection which will be discussed now. Reliance has been placed on CBDT's order F.No. 284/4/75-IT (Inv.), dated 16th October, 1975. It is claimed that instructions were issued by the CBDT under section 119(2)(a) of the Act to the ITOs saying that no proceedings for penalty under section 271(1)(c) of the Act should be initiated in certain cases and the assessee's case is one of them. The learned Departmental Representative has opposed this contention relying on the order of the CIT(A) on the same issue, to which we have already referred. 41. We have considered the rival submissions. In order to appreciate the issue, the relevant order of the CBDT is being reproduced below : "714. Direction to ITO for not initiating penalty proceedings under clause (c), sub-section (1) in certain circumstances --- Order under section 119(2)(a) : 1. In ....
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....deposits in various accounts as on 31st December, 1983 and 31st December, 1984 in the paper book, which are being extracted below : As on 31-12-1983 ----------------------------------------------------------------------------------------------- Name of the account Head Office Branches Total ----------------------------------------------------------------------------------------------- Fixed & Recurring Deposit Scheme 12,79,318 34,31,42,620 34,44,21,938 Current & Savings Deposit Sch....
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....sp; As on 31-12-1984 ----------------------------------------------------------------------------------------------- Fixed & Recurring Deposit Scheme 8,44,677 21,98,78,094 22,07,22,771 Current & Savings Deposit Scheme 2,79,488 7,44,42,293 7,47,21,781 Sulaxmi Deposit Scheme 1,84,840 8,03,36,248 8,05,21,088 Cumulative Deposit Scheme 1,70,427 21,76,14,151 21,77....
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....t schemes. However, the increase in the two schemes was only on account of the fact that the depositors had transferred from deposits in the first two schemes to the last two schemes since the interest paid in the last two schemes was higher. In view of this, it was submitted that the increase in deposits in the two schemes had been adequately explained. 47. Continuing his argument, the learned counsel for the assessee submitted that a question would naturally arise why the assessee did not contest the addition in second appeal before the Tribunal. In this connection, our attention was invited to a chart in the paper book showing returned and assessed loss/income from assessment years 1982-83 to 1987-88. The returned loss varied from about Rs. 2.49 crore to about Rs. 6.85 crore whereas the assessed loss/income, after giving effect to appellate order, varied from Rs. 0.98 crore to about Rs. 3.29 crore, upto assessment year 1985-86 and the assessed income for assessment years 1986-87 and 1987-88 was nil. It was also explained that the business was closed down subsequently because of the regulations contained in the Banking Laws (Amendment) Act, 1983. In the light of this, it was sub....
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.... that the assessee's onus had not been discharged. 53. It was next submitted that the fact that the assessee had not filed a second appeal in quantum amounted to a surrender of the amounts and, in such cases, no further onus was there on the revenue for levy of penalty under section 271(1)(c) of the Act. Reliance was also placed on the decision of the Bombay High Court in the case of Western Automobiles (India) v. CIT [1978] 112 ITR 1048 and that of the Madras High Court in the case of H. V. Venugopal Chettiar v. CIT [1985] 153 ITR 376. 54. Lastly, the learned Departmental Representative submitted that it was not any longer necessary to prove mens rea for penalty for concealment after the introduction of Explanation below section 271(1)(c) of the Act and reliance in this connection was placed on the judgment of the Patna High Court in Addl. CIT v. Bihar State Co-operative Marketing Union Ltd. [1987] 163 ITR 450 and that of the Calcutta High Court in V.P. Samtani v. CIT [1983] 140 ITR 693. 55. We have considered the rival submissions carefully. In our opinion, this is not a case of surrender of an addition by the assessee because the addition was contested in first appeal and the....