TMI Blog1969 (4) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... c) are beyond the jurisdiction of the respective officers and bad in law ? (b) Whether, on the facts and in the circumstances of the case, was the concealment of income established and the imposition of penalty justified ? " [The learned Judge set out the statement of case which ran as follows :] The assessee-firm has been carrying on business as a commission agent for the sale of the products of M/s. Kirloskar Bros. Ltd., M/s. American Springs and Pressing Works (Private) Ltd. and M/s. Tata Fison Ltd. besides selling hardware goods, agricultural implements and accessories. On sales of Rs. 13,38,774 the account books maintained by the assessee-firm disclosed gross profit of Rs. 70,072 or 5.2 per cent. as against 6.3 per cent. on sales of Rs. 6,38,726 in the preceding assessment year 1961-62. The opening stock at the commencement of the relevant accounting year was shown in the account books at Rs. 95,960 and the closing stock at the end of the accounting year at Rs. 60,923. In view of the large turnover disclosed by the assessee and the low closing stock, the Income-tax Officer refused to believe the correctness of the figure of the closing stock shown by the assessee's accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been accounted for by the assessee even in its books, we are satisfied that on the basis of the invoices which included 200 ploughs, the banks gave the overdraft loan to the assessee. We are, however, actually satisfied that the assessee received these 200 ploughs only after the close of the relevant accounting year. This is clear by the evidence afforded by the entries made in the account books. Therefore, the further amount that has to be added to the closing stock is Rs. 17,732 reduced by Rs. 11,806, i.e., Rs. 5,926. The addition that has to be made for undervaluation of the closing stock is, therefore, Rs. 79,984 in place of Rs. 91,790. When the closing stock has been taken as per statements of pledged goods supplied by the bank, it is fair that the opening stock of the current year should also be taken on a similar basis for arriving at the true and correct income. According to the bank statement produced by the assessee, the pledged stock on the last day of the year was Rs. 1,42,289. This figure has to be substituted for the opening balance of Rs. 95,960 in computing the addition to be made. Thus, the addition on account of undervaluation of closing stock of Rs. 79,984 has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said order : (1) In the past the profits have been determined not on the basis of opening and closing stock, but on the basis of sales and purchases and in this year the Income-tax Officer could not change over to a different method of computation of income ; and (2) just before the assessment was about to be made the Income-tax Officer knew that the minimum imposable penalty exceeded Rs. 1,000 and as soon as he knew that he should have immediately referred the penalty proceedings to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner alone had the jurisdiction to issue notice under section 274(2) to the assessee. Having not done so, the penalty notice issued by the Income-tax Officer is bad, since he had no jurisdiction to issue. The Tribunal rejected these contentions. The Tribunal observed that : " The whole argument is neither convincing nor in accordance with the provisions of law. It is the Income-tax Officer that should be satisfied in the course of proceedings that the assessee had concealed particulars of income and it is he who should take cognisance of the offence committed by the assessee and it is he who in the initial stages has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed, the ultimate order is vitiated. The answer to the first question, therefore, must be in the affirmative. This takes us to sub-question (a) of question No. 2, namely, the validity of the notices issued by the Income-tax Officer and the Inspecting Assistant Commissioner in the instant case and the ultimate order passed by the Inspecting Assistant Commissioner. The contentions raised on behalf of the assessee are principally based on the construction which has to be put on these two sections, 271(1)(c) and 274(1), and the scheme of Chapter XXI, which speaks of penalties imposable under the Income-tax Act, 1961. The relevant provision of section 271(1)(c), applicable at the material time was as follows : " 271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person ..... (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. " The penalty that could be imposed for infraction of section 271(1)(c) is given in sub-clause (iii), as it then stood, and that was in the following terms : " (iii) in the cases referred to in cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot with reference to the opening and the closing stocks of goods. In the relevant year out of which this reference arises, the Income-tax Officer preferred to arrive at the particular figure of profits or income by finding out the correct valuation of the closing stock. These figures admittedly were supplied by the assessee and on that basis the Income-tax Officer came to the conclusion that there was under-valuation of the closing stock to a large extent. He, therefore, added a substantial amount as income which represented the true income of the assessee. When this matter was taken before the appellate authority that authority gave some relief to the assessee by reducing the amount by which addition could be made. When that matter was further challenged before the Income-tax Appellate Tribunal, the Appellate Tribunal accepted the contention of the assessee that if the income or profits so added were with reference to the valuation of the stock, then the correct valuation as far as could be practicable should be obtained in respect of not only the closing stock, but also of the opening stock on the same basis and if such valuation were arrived at and determined, the profits which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer issued the notice under section 271(1)(c) of the Income-tax Act, 1961, to show cause why the penalty should not be imposed. Though the actual notices issued either by the Income-tax Officer or by the Inspecting Assistant Commissioner have not been produced, the learned counsel for the department made available to us a true copy of the notice issued by the Income-tax Officer. The assessee was called upon to show cause as per this notice and to appear for that purpose on March 12, 1963. It seems that the penalty proceedings were pending for a considerable time before the Income-tax Officer and on November 13, 1964, the Income-tax Officer referred the matter to the Inspecting Assistant Commissioner because the minimum penalty that was liable to be levied was in excess of Rs. 1,000. This fact is not disputed. When the Inspecting Assistant Commissioner was thus in seisin of the matter as a result of the reference made by the Income-tax Officer, he Issued another notice on December 1, 1964, and thereafter passed an order on 1st February, 1965, imposing a penalty of Rs. 70,000. The contentions raised with regard to question No. 2(a) in this reference also seem to have been agitate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hom the matter was referred by the Income-tax Officer and who also issued a notice on December 1, 1964, under section 274(1) to the assessee are concerned, the contention of the assessee is that at that stage there was no proceeding pending out of which the penalty proceedings could be said to have arisen because according to the provisions of section 271(1) it is only during the course of any proceedings that a notice under section 274(1) could be issued. The two-fold contention, therefore, is that the Income-tax Officer had not the power to issue any notice or initiation of penalty proceedings because the penalty liable to be levied was in excess of Rs. 1,000 and the Inspecting Assistant Commissioner could not be lawfully in seisin of the case or could not exercise jurisdiction in respect of penalty proceedings because at the date by which he took cognizance of the matter, there was no proceeding pending out of which it could be said that the penalty proceedings would arise. In our opinion, neither of these contentions is well founded or can be accepted. A careful perusal of section 271(1) of the Income-tax Act, 1961, will show that the condition precedent for imposition of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate particulars of such income and if the penalty imposable exceeds the sum of Rs. 1,000, the Income-tax Officer cannot himself proceed further in the matter or impose penalty. In such a case, he is enjoined by the legislature to refer the case to the Inspecting Assistant Commissioner. Section 274(2) further provides that in dealing with such matter referred to him the Inspecting Assistant Commissioner shall have all the powers conferred under this chapter for the imposition of penalty. In our opinion, investing the Inspecting Assistant Commissioner, to whom the matter is referred, with all the powers conferred under this chapter, namely, Chapter XXI, for imposition of penalty, is an enabling provision, but it does not mean, and cannot possibly mean, that when a matter is referred to the Inspecting Assistant Commissioner, he has to follow all the steps de novo. Some steps have properly got to be taken by the Income-tax Officer who has been given the power to refer in particular cases the matter of penalty to the Inspecting Assistant Commissioner. Another argument which has been addressed is a sort of conundrum, namely, that whereas the law requires, as it were, that the authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to tax, or where there has been a case of concealment of income, it will be after a notice, but that is not the notice referred to in section 274(1) of the Act. The satisfaction that is to be reached by the Income-tax Officer or the Appellate Assistant Commissioner regarding the concealment of income or other infraction enumerated in section 271(1) will obviously be in the course of proceedings pending before the Income-tax Officer. We, therefore do not see any reason why the subsequent notice required to be given under section 274(1) to the assessee, who is found to have concealed income to show cause why penalty should not be imposed, cannot issue after the completion of the proceedings in which a satisfaction is reached by the Income-tax Officer that the case of concealment of income has been established. In this connection, our attention was invited on behalf of the revenue to the decision of the Supreme Court in Commissioner of Income-tax v. Angidi Chettiar. At page 745 their Lordships have observed as follows : " Counsel contended that, in any event, penalty for the assessment year 1949-50 could not be imposed upon the assessee-firm because there was no evidence that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting Assistant Commissioner in a case where the matter is referred to him under this chapter necessarily postulates the Inspecting Assistant Commissioner exercising powers under all the sections of the chapter, and, therefore it necessarily would imply a power in the Inspecting Assistant Commissioner to come to an independent decision whether there is or is not a concealment of income requiring the penalty to be imposed. In this case, we are not called upon to decide this question. What is the ambit of jurisdiction of the Inspecting Assistant Commissioner and his exercise of the powers under section 274(2) when any penalty proceedings are referred to him because the minimum penalty imposable is in excess of Rs. 1,000 is a matter which does not arise for our decision in this case and we do not want to express any opinion on it ; but it seems to us that if such a power, as is claimed in the Inspecting Assistant Commissioner, exists in that officer, in some cases it is likely to lead to an anomalous result ; whereas the Income-tax Officer would be referring the matter for imposition of penalty to the Inspecting Assistant Commissioner after being satisfied that there is a concealment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of account on the basis of certain percentage of total sales. We do not think that this contention is well founded. It has been found that it is not merely the understatement of the valuation of the closing stock that was taken into account, but also the fact that certain purchases did not find place in the books of account at all. It is the non-mention of the transaction in the books of account which was a factor taken into consideration in determining whether there was a concealment of income. Concealment of income is the ultimate result in those cases where there is a discrepancy in the income returned and the income ultimately found, though it may not be invariably so. The charge of concealment of income was found to have been established in this case because of a deliberate non-mention of certain transactions in the books. Whatever be the reason for non-mention, if the non-mention of the transactions has resulted in the failure to disclose true income of the assessee, the authorities were entitled to come to a conclusion that this was a case of concealment of income. Moreover, from the statement of the representative of the assessee and the finding recorded by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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