TMI Blog1998 (8) TMI 607X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of section 271(1)(c) of the Act ? Assessment years 1970-71 and 1971-72 : (1) Whether, on the facts and circumstances of the case, the Tribunal was right in law in upholding the order of the Inspecting Assistant Commissioner imposing penalty on the ground that the assessee has concealed the particulars of income, furnished inaccurate particulars of income within the meaning of section 271(1)(c) of the Act or in the alternative was liable to penalty on the ground that there was gross or wilful neglect on the part of the assessee in not disclosing the correct income within the meaning of Explanation to section 271(1)(c) of the Act ? (2) Whether the Tribunal was right in upholding the order of the Inspecting Assistant Commissioner on the ground that the directions issued by the Inspecting Assistant Commissioner to the Income-tax Officer to impose penalty was not fatal to the penalty proceedings for both the years ? The assessee is a firm which, at the relevant time, carried on business in purchase and sale of ball bearings, mill stores, etc., on retail basis. For the assessment year 1970-71, the assessee had disclosed the sales of ₹ 2,78,426 with gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itiated action for imposition of penalty under section 271(1)(c) of the Act, took up the matter for his consideration for imposition of penalty after the decision of the Tribunal in the quantum proceedings was received. In order to bring to the forefront the basis on which the penalty proceedings were initiated by the Income- tax Officer, we may at this stage refer to the assessment order in respect of the said year 1970-71 made by the Income-tax Officer on March 31, 1973, which is at annexure- D in the paper book. In this assessment order, the Income-tax Officer has, in detail, noted the discrepancies and referred to the doubtful purchases made from various parties and to the fact that for reasons mentioned in paragraph 3 thereof, the books of account were impounded and the stock was got reconstructed brand-wise with the help of the accountants of the assessee. In respect of the cash purchases, while referring to the item of ₹ 9,984 relating to 31 cash purchases, it was observed that there were no memos or vouchers, no details as to the nature of goods and no receipts for the payment of the same. It was noted that the assessee s only explanation was that the purchases we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er grouping several brands thereof. It was held that the explanation of the assessee was false as per the assessee s own quantity statement filed on March 29, 1973. It was, therefore, held that there were sales of ₹ 81,731, for which there were no details of acquisition and further that there were items costing ₹ 68,087, which should have been shown in the closing stock but had not been shown, as well as items shown in the closing stock costing ₹ 11,954, which did not come from any opening stock or purchases. The Income-tax Officer in his conclusions, while referring to the item not shown in the closing stock by the assessee to the tune of ₹ 68,067 (clause 9 of annexure attached with the order) found that the unexplained purchases came to ₹ 30,532 (as per clause 11 of the annexure attached with the order) and this debit was, therefore, added to the total income of the assessee as unproved and as the assessee himself had not shown the same in the closing stock proving that the debit of ₹ 30,532 was wrong. The remaining amount of the items which were not shown in the closing stock (as per clause 9 of the annexure attached with the order), i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se discrepancies. The Income-tax Officer, therefore, concluded that additions as worked out in the assessment order totalling to ₹ 1,92,538 were called for. In view of the defects noticed by the Income-tax Officer, he concluded that real profit could not be ascertained from the books. He, therefore, estimated a turnover of ₹ 6 lakhs and gross profit at 50 per cent., and made an addition of ₹ 2,06,754. The Income-tax Officer had restricted the addition to the higher of the two amounts, viz., the gross profit addition in order to avoid double taxation. The matter was carried in appeal before the Appellate Assistant Commissioner, who reduced the rate of gross profit to 35 per cent. while retaining the estimated turnover and granted the consequential relief. In further appeal, the Tribunal upheld the decision of the Appellate Assistant Commissioner. The Inspecting Assistant Commissioner in his order made under section 271(1)(c) of the Act on September 22, 1980, for the assessment year 1970-71, held in respect of the amount of ₹ 6,396, being item of cash purchases without proof, that these purchases were bogus and in the nature of inflation and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stified in the quantum appeal, the said amount was not exigible to penalty in view of the decision of the Supreme Court in D. M. Manasvi v. CIT [1972] 86 ITR 557, and of the Gujarat High Court in case of CIT v. Lakhdhir Lalji [1972] 85 ITR 77. As regards the assessment year 1971-72, the Tribunal observed that the Income-tax Officer on detailed enquiries found that there were bogus purchases, the purchases not reflected in sales or closing stock and also cash purchases, and unaccounted for purchases amounting to ₹ 1,92,538 and had adopted the course of making addition by estimating the gross profit as also the turnover. It was noted that the addition was not the one made for want of verificatory records but based on specific defects pointed out by the Income-tax Officer. In other words, the gross profit addition which was made in lieu of specific additions noted by the Income-tax Officer was based on specific defects such as discrepancies and manipulations in the accounts noted in great detail by the Income-tax Officer in his order. Relying upon the decision of this court in the case of CIT v. S. P. Bhatt [1974] 97 ITR 440, the Tribunal, therefore, upheld the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice to the assessee was issued under section 274 of the Act for levying penalty for concealing of income. On appeal from the assessment order, the Appellate Assistant Commissioner held that 1,383 bags of garlic were included in the stock of the assessee and that a sum of ₹ 34,000 should be added on the footing of undervaluation of the stock and not ₹ 58,000. The Inspecting Assistant Commissioner in the penalty proceedings took note of the Appellate Assistant Commissioner s order and levied a penalty of ₹ 7,400 on the footing that the assessee had deliberately furnished inaccurate particulars of his income. The Appellate Tribunal held that the order of the Inspecting Assistant Commissioner was without jurisdiction as his jurisdiction was restricted to those items of concealment of income in regard to which the Income-tax Officer was satisfied that there was concealment of income. The High Court held that the penalty proceedings had been commenced against the assessee on a particular footing, viz., concealment of particulars of income, but the final conclusion for levying the penalty was based on a different footing altogether, viz., on the footing of furnishing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1964, provides that where the total income returned is less than eighty per cent. of the total income assessed, the assessee shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income within the meaning of section 271(1)(c) of the Act. The Explanation creates a legal fiction if the condition of its applicability is satisfied. It was held that the condition is an objective condition, namely, that the total income returned by the assessee should be less than eighty per cent. of the total income assessed, and the assessee is straightaway brought within the penal provision in section 271(1)(c) of the Act. However, this legal fiction could be displaced if the assessee proves that the failure to return the correct income did not arise due to any fraud or gross or wilful neglect on his part. In that case, the finding reached by the Tribunal was that there was no fraud or gross or wilful neglect on the part of the assessee. It was not the case of the Income-tax Officer that any particular entries i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealment of particulars of income or a deliberate failure to furnish accurate particulars. It was further held that the cases to which the Explanation was attracted have to be decided in the light of the law enunciated in the cases of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 (SC) and CIT v. K. R. Sadayappan [1990] 185 ITR 49 (SC). The Supreme Court held that the Explanation to sub-section (1) of section 271 added by the Finance Act, 1964, shifts the burden of proof to the assessee in the situation covered by it and once the returned income was shown to be less than 80 per cent. of the total income assessed, the presumption comes into play and then the burden shifts to the assessee to establish that his failure to return the correct income was not on account of any fraud or gross or wilful neglect on his part and if he fails to establish the same, the presumption will become a finding and it would be open to the authority to levy the penalty. But, if the assessee establishes that his failure to return the correct income was not on account of any fraud or any gross or wilful neglect on his part, it is evident, no penalty can be levied. In CIT v. Mussadilal Ram Bharose [1987] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 271(1) of the Act, only if the Income-tax Officer or the Appellate Assistant Commissioner, is satisfied in the course of any proceedings under the Act. If he is satisfied as per clause (c) that any person has concealed the particulars of his income or has furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty the sum mentioned in sub-clause (iii) of clause (c). The expression used in clause (c) is has concealed the particulars of his income or furnished inaccurate particulars of such income . Therefore, both in cases of concealment and inaccuracy, the phrase particulars of income is used. It will be noted that as regards concealment the expression in clause (c) is has concealed the particulars of his income and not has concealed his income . It is obvious that the penal provisions would operate when there is a failure of duty, to disclose fully and truly particulars of income, imposed under the Act and the rules thereunder. The duty is enjoined upon a person to make a correct and complete disclosure of his income and it is only when he fails in his duty by not disclosing his income or part thereof, he conceals the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tents of the prescribed form of the return of income that the assessee is required to give various particulars of income under different heads. For example, in Form No. 2 of the return of income prescribed for persons other than companies and those claiming exemption under section 11 during the relevant assessment years, statement of total income in Part I covered six heads of income, namely, salaries, interest on securities, income from house properties (the particulars of which were to be given as per annexure 2), profits and gains of business or profession (the particulars of which were to be given as per annexure-3), capital gains and income from other sources. The aggregate of items Nos. 1 to 6 was to be shown against item No. 7. Thereafter, deductions specified below item No. 7 were to be made in respect of brought forward loss of earlier years and the balance was to be struck from which amounts deductible under Chapter VIA of the Act and the amount of annuity deposit were to be deducted, leading to the figure of the total income. In Part II, deductions under Chapter VIA of the Act were to be enumerated for working out the total deduction, which was to be carried to Part I. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed in the manner laid down in the Act. Thus, for arriving at the total income, the income derived from all sources is to be considered as provided by section 5, when it is received or deemed to be received by a person. Certain incomes which are enumerated in section 10 of the Act are not included in the total income. All income for the purpose of charge of income-tax and computation of total income is required to be classified under distinct heads of income such as salaries, income from house property, profits and gains of business or profession, capital gains and income from other sources, as enumerated in section 14 of the Act. The income chargeable to income-tax under the head Salary is of the nature of the income indicated in section 15 of the Act, to be computed after making the deductions mentioned in section 16. The income under the head Income from house property under section 22 is to be computed after making deductions mentioned in section 24. The income chargeable under the head Profits and gains of business or profession is to be computed in accordance with the provisions contained in sections 30 to 43A of the Act, as provided in sections 28 and 29 thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t correct or that it was not complete in respect of the particulars of income which were required to be stated in the return, he will reach the correct figure of total income and determine the sum payable by the assessee or refundable on the basis of such assessment. If the income chargeable to tax has escaped assessment for any assessment year, by reason of omission or failure of the assessee to disclose fully and truly all material facts necessary for his assessment, reassessment proceeding can be initiated as provided under section 147 of the Act. This again shows that full and true disclosure of income is a primary obligation of the assessee. It is in the background of these statutory obligations of an assessee to fully and truly disclose his income under various heads and indicate the income under those heads which is chargeable to income-tax after making permissible deductions in which the provisions of section 271(1)(c) which fall for our consideration are to be viewed. If a person obliged to furnish the particulars of his income, omits to furnish them, he thereby conceals the particulars. This concealment may take various forms. A glaring illustration of concealment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he falsity of one or more of the constituent items in the return. The words inaccurate particulars would cover falsity in the final figure as also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result. There cannot be a straitjacket formula for detection of these defaults of concealment or of furnishing inaccurate particulars of income and indeed concealment of particulars of income and inaccurate particulars of income may at times overlap, as for example, when half of the income under a particular head is not at all disclosed, that would be concealed to that extent while the remaining half which is in fact disclosed would, not being his complete disclosure, amount to inaccurate particulars of income as regards that constituent item of the return. By the very nature of the assessment proceedings the Income-tax Officer while ascertaining the total income chargeable to tax would be in a position to detect the specific or definite particulars of income concealed or of which false particulars are furnished. Where in the constituents of income returned, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck reconstructed by the assessee did not, as per the very material prepared by the assessee through his auditor, show any stock or sales corresponding to such purchases as found by the Income-tax Officer in the quantum proceedings and noted by the Tribunal in the appeal in the quantum proceedings, the income of the assessee was concealed to the extent that it stood reduced by not showing the value of purchases in the closing stock or sales. The profits and gains of business disclosed in the return were, therefore, less because the purchases shown remained on the debit side without corresponding amount on the credit side by stating the value of the closing stock or the sales and reaching the profit figure by subtracting the debit side from the credit side. The income not shown by this process obviously was concealment of particulars of income. Even if it was to be treated as inaccurate particulars of income as argued by learned counsel, there would at the best be overlapping of the two defaults and it will none the less remain concealed particulars of income to the extent that the subconstituent income was not disclosed in the return. The penalty proceedings did not transgress this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shift in basis was raised on an inaccurate statement in paragraph 15 of the Tribunal s decision in the penalty appeal, in which it made an observation that this addition was restored by the Tribunal in quantum proceedings on the ground that purchases were recorded in the books and found in the stock book. Learned counsel after verifying the Tribunal s order very fairly stated that there was no statement in the Tribunal s order in the quantum appeal that the purchases were found in the stock book. As there was no change in the basis on which the penalty proceedings were initiated on the ground that there was concealment of particulars of income or furnishing inaccurate particulars of income, and, the assessee did get complete opportunity of hearing in respect of the specific constituent of the income on which the penalty was levied, the above decisions relied upon in favour of the assessee cannot help the assessee. To say that when the Department, on the basis of the purchases not being traced in the closing stock or sales, draws an inference that they were sold, it should be assumed that stock was in fact found and, therefore, there was no concealment of particulars of income b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer in all fairness had made the addition by estimating the gross profit in place of the specific additions actually noted by him. There is no dispute about the fact that in respect of the said assessment year 1971-72, the Explanation to section 271(1)(c) of the Act was attracted and the assessee was required to discharge the burden of proving that the concealment or inaccuracy in the particulars of income did not arise from any fraud or any gross or wilful neglect on its part. As can be seen from the Explanation to section 271(1)(c) of the Act, which prevailed at the relevant time, that where the total income returned by any person is less than eighty per cent. of the total income referred to as the correct income as assessed under section 143, 144 or 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 correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 400 and issue necessary demand notice and challan for the same. 14. For the assessment year 1971-72, the minimum penalty leviable is ₹ 1,16,754 and the maximum penalty leviable is ₹ 2,33,508. I direct the Income-tax Officer to levy minimum penalty of ₹ 1,16,754 and issue necessary demand notice and challan for the same. There is no dispute about the fact that the penalty proceedings were conducted before the Inspecting Assistant Commissioner and he took into consideration the contentions which were raised by the assessee against imposition of penalty in respect of both these assessment years. After reaching his finding in the body of the order, the Inspecting Assistant Commissioner in respect of the assessment year 1970-71 held that the minimum penalty leviable was ₹ 75,400 and the maximum ₹ 1,50,800 and he directed the Income-tax Officer to levy the minimum penalty of ₹ 75,400 to be levied by the Income-tax Officer and issue necessary demand notice. By a similarly worded order, he directed the Income-tax Officer to levy the minimum penalty of ₹ 1,16,754 for the assessment year 1971-72 and issue necessary demand notice and challan fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the proceedings that the assessee shall pay the amount of minimum penalty mentioned in these orders. There is no question of any delegation of power to the Income-tax Officer because no discretion whatsoever was left to the Income-tax Officer, who had only to issue a demand notice as required by section 156 of the Act, which, inter alia, lays down that when any penalty is payable in consequence of an order passed under the Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. Rule 15 of the rules framed under the Act, prescribes the necessary form in this regard and as per that Form No. 7, the concerned person was to be informed, all the details of such penalty determined to be payable by him. The assessee has not produced any such notice of demand, though its learned counsel fairly stated that such notice was received pursuant to the penalty orders and the amounts have been paid up. It will be noted from item No. 9 of Form No. 7 that the particulars of the amount due as a result of the order of the Appellate Assistant Commissioner of Income-tax/Inspecting Assistant Commissioner/Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
