TMI Blog1990 (6) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... see is an individual doing contract business. The previous year relevant to the assessment year 1969-70 ended on March 31, 1969. Originally, the assessee filed a return with a loss of Rs. 1,14,330. The Income-tax Officer, after discussing with the assessee's representative, determined the income as "nil" from the business activity and brought to tax a sum of Rs. 5,110 being the share income from a firm in which the assessee was a partner. Thereafter, the assessee filed an appeal against the disallowance of the loss and the Appellate Assistant Commissioner set aside the assessment and directed the Income-tax Officer to redo the same. That assessment was made on May 31, 1971. During the course of examination of the accounts, the Income-tax Officer found that the books contained many defects such as erasures, overwritings and interpolations. The Income-tax Officer examined the assessee and also the cashier and the accountant. On the basis of the evidence collected, the Income-tax Officer came to the conclusion that the books were manipulated and hence he rejected the account books and estimated the income from contract business at Rs. 34,157 by applying the net profit rate of 7% on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l held that this sum cannot be taken as concealed income for the purpose of levy of penalty. The first question referred to us relates to the reduction of the penalty under section 271 (1) (c) of the Act from Rs. 2,53,351 to Rs. 45,737 on the ground that the loss returned by the assessee should not be added to the income finally assessed for the purpose of levy of penalty. The second question relates to Rs. 29,000 which was held by the Tribunal as an income not concealed by the assessee. While making his submissions, learned standing counsel, with regard to question No. (1), contended that income includes loss, since the loss is also a negative income. Therefore, according to learned standing counsel, furnishing inaccurate particulars with regard to loss would also attract penalty under section 271(1)(c) of the Act. In order to support this contention, learned standing counsel for the Department drew our attention to a passage occurring at page 1205 in Volume I of Law and Practice of Income-tax by Kanga and Palkhivala. So also learned standing counsel brought to our notice a passage occurring at page 4090 in Volume V of Sampath Iyengar's Law of Income-tax. Our attention was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, it should not be considered for the purpose of levying penalty under section 271(1)(c) of the Act. For the assessment year 1969-70, the assessee who is an individual filed his return, claiming a loss of Rs. 1,14,330. After examining the books of accounts, the Income-tax Officer rejected the same on the ground that tile account books were manipulated and, therefore, according to the Incometax Officer, they are not reliable. Thereafter, the Income-tax Officer estimated his income from contract business by applying the net profit rate of 7% on the total business receipts of the year. He also added some cash credits. Finally, the Income-tax Officer completed the assessment as under: Rs. Business : share income 5,110 (b) The books were rejected on account of the defects and income estimated at 7% of receipts 34,157 (c) Credits unexplained Rs. 1,37,604. This was later reduced in appeal by Rs. 32,725. 1,04,879 ---------------- 1,44,146 Less : Loss carried forward 5,125 ---------------- 1,39,021 ---------------- As can be seen from the assessment order extracted in the order passed by the Inspecting Assistant Commissioner, it is clear that the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which levies income-tax, as only one tax, on the 'total income' of the assessee as defined in section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the 'total amount of income , profits and gains referred to in section 4(1)'. Secondly, it must be computed in the manner laid down in the Act. If either of these conditions fails the income will not be a part of the total income that can be brought to charge." It remains to be seen that this decision was rendered in accordance with the provisions contained in the abovesaid sections in the Indian Income-tax Act, 1922. Even according to this decision, the income must be computed in the manner laid down in the Act in order to come within the purview of the definition given under section 2(15). Another decision cited before us was that reported in the case of CIT v. J. H. Gotla [1985] 156 ITR 323 (SC). In this decision, while considering the facts appearing in that case in the light of the provisions contained in sections 16(3)(a) and 24(2) of Indian Income-tax Act, 1922, and the Explanation added by the Finance Act, 1979, to section 64 of the Incometax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the word "income" in section 271(1)(c) should refer to a positive figure only and not to a loss, could not be said to be a question of law arising out of the order of the Tribunal and had not to be answered." In the above cited decision, the question whether income includes loss also was not decided. Hence, this decision also will not render any help in deciding the issue arising in the present case. Yet another decision brought to our notice was that reported in the case of CIT v. Jaora Oil Mill [1981] 129 ITR 423 (MP). In this case, while considering the provisions contained in section 271(1)(c) of the Income-tax Act, 1961, the Madhya Pradesh High Court, held as under (headnote): "The definition of 'income' in section 2(24) of the Income-tax Act, 1961, is an inclusive definition and it covers even such items which are not income in the natural sense of the word. Even in its broadest connotation, 'income' refers to monetary return 'coming in' and is conceptually contradictory to 'loss'. Section 4 taxes income and not loss which can be carried forward under certain circumstances." This is the only decision touching the point in issue arising in the present case. So a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished." The relevant words are "the amount of income". The word "income" has been defined under section 2(24) of the Income-tax Act, 1961. It is an inclusive definition and it takes into its fold not only the real income, but also such items which are not income in the natural sense of the word. Even in section 4, which is a charging section, nowhere is it stated that income includes loss. It is also significant to note that wherever it is necessary to consider loss as income, the Act specifically stated so, as can be seen from Explanation 2 to section 64. On the other hand, in sections 271(1)(c) and 271(1)(iii), nowhere is it stated that income includes loss. One other method of testing the contention put forward by the Department was that if income includes loss, then the assessee returned a loss of Rs. 1,14,330. The Income-tax Officer assessed the net income at Rs. 1,39,021 under the head "Business income" as can be seen from the Inspecting Assistant Commissioner's order ; then where is the difference of 20 per cent. between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case. Learned standing counsel contended that the Explanation to section 271(1)(c) will be applicable to the facts of this case. Hence, it was submitted that the Tribunal was not correct in deleting the penalty on Rs. 29,000. The submission of learned standing counsel was that the Explanation to section 271 ( 1 ) (c) of the Act is applicable to the facts of this case and the assessee has not discharged the initial burden placed upon him by producing any material and, therefore, the Tribunal was not correct in deleting the penalty on Rs. 29,000. In order to support his contention, learned standing counsel relied upon a decision of this court rendered in the case of CIT v. Bala I. M. Rao [1989] 177 ITR 114, wherein this court held that, according to the facts appearing in that case, there was difference of 20% between the assessed income and the returned income and hence the Explanation to section 271(1)(c) is applicable, but the assessee has not produced any material to discharge the burden placed upon him and, therefore, penalty under section 271(1)(c) was exigible. To the same effect, there is also another decision of this court in the case of CIT v. T. K. Manicka Gounder [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been furnished, has to be found by the authority concerned. Any other interpretation would make the proceedings for levy of penalty completely subservient to the assessment proceedings which does not appear to be the scheme of the Act. This was the view taken by this court in the case of M. Radhakrishniah v. CIT [1984] 147 ITR 133. Under the Explanation to section 271(1)(c), to prove the absence of fraud or gross or wilful neglect, ordinarily and generally there cannot be any direct evidence. The assessee merely has to place materials of the primary facts or the circumstances which in all reasonable probability would show that he was not guilty of any fraud or gross or wilful neglect. The facts appearing in this case would go to show that the assessee produced primary facts before the Inspecting Assistant Commissioner to dislodge the burden placed upon him. On the other hand, in the penalty proceedings, no materials were brought in by the Department to show that the assessee concealed or furnished inaccurate particulars. In fact, in the quantum appeal, the Tribunal accepted the explanation offered by the assessee and deleted a portion of the unexplained cash credit. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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