TMI Blog1987 (7) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... siness up to 21-5-1971 when Shri J. P. Agarwal died. On his death the firm was dissolved. Thus these are penalty orders passed on a dissolved firm in fact the assessments on the basis of which the penalties have been imposed were also made on the dissolved firm. 3. This firm was being assessed in Calcutta. The original assessments were framed at Calcutta on dates which are not placed before us. 4. After the original assessments had been made the firm filed a disclosure petition on 12-11-1964 and a supplementary disclosure petition on 29-4-1968, before the Commissioner of Income-tax, West Bengal-III under section 271(4A) of the Income-tax Act. The voluntary disclosure made covered period from 1949-50 to 1963-64. Thus, a part of the period was prior to the inception of this firm. In this voluntary disclosure it had been stated by the assessee that the assessments made were not proper and adequate and out of Rs. 13,63,304 earned during this period, Rs. 8,00,000 had remained untaxed. The partners wanted to introduce the money belonging to them and, therefore, the disclosure was made. This disclosure was to be meant to be a disclosure under the Voluntary Disclosure Scheme launched b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces represented by peak credits were Rs. 35,000, Rs. 50,000, Rs. 58,500, Rs. 73,130, Rs. 90,000, Rs. 97,700, Rs. 64,500 and Rs. 94,670 for the assessment years 1956-57 to 1963-64 respectively. 7. While imposing the penalty the Income-tax Officer observed that no reply was filed before him to the show cause notice and it was also mentioned that the assessee had agreed to the various additions by way of income from other sources. It appears from the assessment orders passed on 31-3-1982 that on 16-3-1982 the assessee had written a letter to the Income-tax Officer in which he had agreed to be assessed on the various peak credits as the assessee's income. The Income-tax Officer also observed that the assessee himself had accepted that he had not declared his correct income and had not furnished its true income. Relying on the decision of the Delhi High Court in the case of Durga Timber Works v. CIT [1971] 79 ITR 63, the Income-tax Officer proceeded to impose penalty under section 271(1)(c) and it was also stated in the orders that the penalty order was being passed with the prior approval of the Inspecting Assistant Commissioner. The penalties imposed in the various years are Rs. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable and thus the Income-tax officer did not have the jurisdiction to pass his order. On this basis it was submitted that the penalty orders were bad in law as they were deficient in jurisdiction of the Income-tax Officer. 10. It was also contended by the learned Counsel for the assessee that this issue had not been raised by the assessee before the CIT (Appeals) but this was being raised at this stage as it was a question of law and except for the record of the Income-tax Officer nothing else was to be seen. It was point out that the assessee had taken an inspection of the record and at that time it was found that when the order was passed that approval of the Inspecting Assistant Commissioner had not been accorded. It was submitted that in the matters of penalty strict interpretation was necessary. In this connection, a reference was made to the observations of Maxwell regarding the interpretation of statutes. 11. The learned Counsel was asked as to what would be the position of the penalty orders as this was merely an irregularity and nothing which cause to make the penalty orders ab initio void had taken place. The Counsel for the assessee, on the other hand, submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was that in respect of assessment years 1959-60 to 1963-64 the assessments themselves were illegal as the Income-tax Officer while making an addition of more than Rs. 1,00,000 as compared to the returned income had not referred the draft assessment to the Inspecting Assistant Commissioner and thus the assessment orders passed were not in accordance with the provisions of law. He submitted that valid penalties contemplate valid assessment orders and as the assessments made were not valid, the penalties orders should be struck down. 14. The other argument advanced by the learned Counsel was that the matters related to assessment years 1956-57 to 1963-64 and penalties were being imposed in 1984. Thus these orders were being passed two decades after the event and it could not be considered reasonable as it was not possible to adduce evidence and to prove anything after such a lapse of time. It was also submitted that at this stage there would be no justification for setting aside as a long period had already elapsed. 15. The learned Counsel for the assessee submitted that the show cause notice had been served on the ex-partner Shri K.C. Agarwal on whom also the assessment orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to laying an impossible burden of proof on the Department and making the provisions for the imposition of penalty wholly unworkable, if even after the assessee had admitted that the two amounts could be treated as the concealed income the Department had still to prove by independent evidence that the assessee had concealed its income. He submitted that the facts of that case were entirely different. The learned Counsel strongly relied on the decision of the Punjab Haryana High Court in the case of Gumani Ram Siri Ram v. CIT [1972] 85 ITR 67. In the end the learned Counsel submitted that the quantum of penalty imposed was excessive and in this case only the minimum penalty, if any, should have been imposed. The assessments were made on the basis of the material given by the assessee and it was not the Department, which had detected any facts regarding the income from undisclosed sources. The learned Counsel, therefore, submitted that the penalty orders suffered from various illegalities and it should be struck down. 17. The Departmental Representative submitted that the Income-tax Officer had made a reference to the Inspecting Assistant Commissioner for approving his order and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the assessments themselves were made in 1982 and considering that the delay was not there. 21. We have carefully considered the facts of the case and the rival submissions. In respect of assessment years 1956-57 to 1961-62 the original assessments have been made and they were reopened to bring to tax income which had escaped assessment. In respect of assessment years 1961-62 to 1963-64 the original assessments were made but they were set aside in appeal and in the course of the set aside proceedings the assessee following the pattern for the earlier years agreed that the peak credits should be assessed as the income of the firm in this basic framework we have to consider the contention of the learned Counsel for the assessee that the reassessments proceedings and the assessment of the income from undisclosed sources were passed on the basis of the disclosure made by the assessee before the Board and the Commissioner of Income-tax. The main argument in this regard was that it was the assessee, who came forward with the disclosure and it was not a detection as a result of any inquiry by the Income-tax Officer. In this connection it has also been pointed out that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27 that penalty under section 271(1)(c) can be imposed in reassessment proceedings under section 147 with respect to concealment of income in the original assessment proceedings of that year. Several other High Courts also have taken the same view. Even where revised returns were filed after the assessments had been set aside by the appellate authorities and in the course of the proceedings the assessee admits that the peak credits represented his income will still be liable for penalty for concealing its income while filing the original returns. The right to file a revised return under section 139(5) is only applicable in those cases where there is an omission or wrong statement in the original return and not any concealment or false statement. It was so held by the Madras High Court in the case of CIT v. J.K.A. Subramania Chettiar [1977] 110 ITR 602. The same view was taken by the Gauhati High Court in the case of F.C. Agarwal v. CIT [1976] 102 ITR 408 and by the Allahabad High Court in the case of Amjad Ali Nazir Ali v. CIT [1977] 110 ITR 419. In view of the above legal position, it is not possible to accept the plea of the learned Counsel for the assessee that penalty should n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the Income-tax Officer had completed the assessments without making a reference to the Inspecting Assistant Commissioner of Income-tax under section 144B in spite of the fact that the difference between the returned income and the income to be assessed was more than Rs. 1 lac. The Departmental Representative had pointed out that though the assessee had not shown the whole of the undisclosed income in his return or revised return but he accepted to be assessed on this income by his letter which has been mentioned by the Income-tax Officer in the assessment orders. It is also an admitted fact that the validity of the assessments had not been challenged by way of an appeal on this ground if such an assessment is challenged on the ground that a reference under section 144B had not been made though it was required, the result would be that the assessments could be held to have been completed without following the procedure laid down under law and could have been set aside for fresh assessments in accordance with law in this case, however, nothing of this sort was done. Now we have to consider whether the omission to refer the assessment to the Inspecting Assistant Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iginally returned did not represent the assessee's correct income and substantial income had remained to be taxed as a result of non-disclosure. After having disposed of the other objections raised by the learned Counsel for the assessee, we come to the last issue raised by the assessee in his statement of facts which was argued first by the learned Counsel for the assessee. According to the requirement of law, the Income-tax Officer was bound to obtain the approval of the Inspecting Assistant Commissioner of Income-tax before calling upon the assessee to pay penalty under section 271(1)(c). This was the position under the Indian Income-tax Act, 1922 and is the position in the Income-tax Act after 1976 when an amendment to this fact has been carried out that such an approval has to be taken in all the cases where the concealed income exceeds a sum of Rs. 25,000. In this case the Income-tax Officer had made a reference to the Inspecting Assistant Commissioner on 30th March, 1984 seeking approval for his draft orders under section 271(1)(c) for all these years. The penalty orders have also been passed on the same date though the Inspecting Assistant Commissioner of Income-tax has com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter to that stage directing the Income-tax Officer to take action so as to remove the lacuna and to abide by the requirements of law. As regards the question of limitation, we are of the considered view that we need not go into the matter at this stage. The learned Counsel for the assessee has already referred to certain cases where it was held that section 275 applies not only to the initial penalty order but also to a penalty order passed after the case was remanded by the appellate authorities. It was so held by the Allahabad High Court in the case of Ram Baran Ram Nath and also in the decision of CIT v. Bhudhar Singh Sons [1983] 143 ITR 322. As against this, there is divergence of judicial opinion on this issue and some Courts have held that section 275 applies only to the initial penalty order passed by the competent authority and it does not apply to a penalty order passed after the case was remanded by the appellate authority. It was so held by the Gujarat High Court in the case of Vasani Co. v. CIT [1978] 112 ITR 819 and by the Madhya Pradesh High Court in the case of Mohd. Shafi Khan v. CWT [1983] 144 ITR 489. Similar view was taken by the Rajasthan High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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