TMI Blog1989 (1) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is a reasonable view to take on the facts and in the circumstances of the case ?" The assessee is a firm consisting of two partners and it derives income from business in Oilman Stores. For the assessment year 1959-60, on May 11, 1959, it filed a return admitting an income of Rs. 1,09,555 and the assessment was completed on August 12, 1960, on a total income of Rs. 1,18,317. Subsequently, the assessment was reopened under section 147(a) to consider the assessment of certain spurious hundi loans in the name of Multani Bankers and a notice was also issued under section 148 of the Act and in response to that notice, on August 22, 1969, the assessee filed return showing the income as originally assessed on August 12, 1960. In the course of the reassessment proceedings, since the assessee did not substantiate the genuineness of the hundi credits, despite a number of opportunities given, the Income-tax Officer treated Rs. 2,45,000 representing increase in the peak of non-genuine hundi credits as income from undisclosed sources and also disallowed a sum of Rs. 61,225 being the interest relating to that and completed the reassessment on February 29, 1972. The assessee preferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 28(1)(c) of the Indian Income-tax Act, 1922, as erroneously assumed by the Tribunal. In this connection, strong reliance was placed by learned counsel for the Revenue upon the decisions reported in Jain Bros. v. Union of India [1970] 77 ITR 107 (SC) ; R. Kuppuswamy Chetty v. CIT [1982] 135 ITR 235 (Mad) [FB] ; Maya Rani Punj v. CIT [1986] 157 ITR 330 (SC) and CIT v. Bihar Cotton Mills Ltd. [1988] 170 ITR 290 (Pat). Learned counsel for the assessee, however, attempted to sustain the approach of the Tribunal on its reasoning. Before proceeding to consider the correctness of the order of the Tribunal and decide whether section 28(1)(c) of the Indian Income-tax Act, 1922, or the provisions of the Act would be applicable, it would be necessary to refer to the provisions relating to repeals and savings under section 297 of the Act. Under section 297(1), the Indian Income-tax Act, 1922, was repealed. Section 297(2)(f) and (g) are the relevant provisions and they are as follows: "297. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922, ( 11 of 1922) (hereinafter referred to as the repealed Act),. (f) any proceeding for the imposition of a penalty in respect of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) (a) of the Act for non-compliance with the notice under section 22(2) of the Indian Income-tax Act, 1922. In the writ petition filed by the assessee challenging the validity and constitutionality of section 297(2)(g) and section 271(2) of the Act, the High Court declined to issue a writ and that was how the matter was carried in appeal to the Supreme Court. The Supreme Court observed at page 117 as follows : "We are further unable to agree that the language of section 271 does not warrant the taking of proceedings under that section when default has been committed by failure to comply with a notice issued under section 22(2) of the Act of 1922. It is true that clause (a) of subsection (1) of section 271 mentions the corresponding provisions of the Act of 1961, but that will not make the part relating to payment of penalty inapplicable once it is held that section 297(2)(g) governs the case. Both sections 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year which is completed after the first day of April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he references at the instance of Kuppuswamy Chetty, it was contended that the concealment, which had given rise to the penalty proceedings, was in the original returns filed. In repelling this argument, the Full Bench pointed out, after referring to section 297(2)(f) and (g) of the Act, that a combined reading of those clauses would show that in order to determine the law under which the penalty is to be imposed, it would be necessary to examine when the relevant assessment was completed and that if it was completed before April 1, 1962, the penalty would have to be imposed under the Act of 1922, as if the new Act had not been passed, but that if the assessment was completed on or after April 1, 1962, the penalty proceedings would have to be initiated and the penalty imposed under the provisions of the Act. Referring to the completion in that case of the reassessment on September 17, 1969, the Full Bench pointed out that the completion of the original assessments would not be relevant, because with reference to the relevant returns for those years, forming the basis of the original assessments, there was no finding or even a possibility of a finding that there was any concealment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Punj v. CIT [1986] 157 ITR 330. In that case, the assessee, for the assessment year 1961-62, had to file the return by September 28, 1961, but it was not so filed nor was any extension of time asked for. However, the return was filed after seven months' delay on May 3, 1962, after the provisions of the Act had come into force with effect from April 1, 1962. Penalty proceedings were initiated under section 271(1)(a) of the Act and a penalty was also imposed on the assessee on the ground that she had not been prevented by any reasonable cause from filing the return in time. The Appellate Tribunal held that though the penalty was leviable under section 271(1)(a) of the Act, the quantum had to be fixed according to section 28 of the 1922 Act and reduced the penalty. On a reference, the High Court took the view that it was not competent for the Tribunal to reduce the penalty levied under section 271(1)(a) of the Act to a figure lower than that equal to 2% per month during which the default continued, but not exceeding 50% in the aggregate of the tax. On further appeal to the Supreme Court, following the principles laid down in the decision in Jain Bros. v. Union of India [1970] 77 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Tribunal has totally misdirected itself in its approach to the consideration of the question of the proper provisions applicable for the initiation of action for penalty proceedings and its imposition as well and also in viewing the concealment as one which had occurred when the original return was filed and prior to the completion of the assessment on that basis. We, therefore, answer the second question referred to us in the negative and in favour of the Revenue. We now proceed to consider the first question. We have earlier pointed out that having regard to the date of the completion of the reassessment on February 29, 1972, under section 297(2)(g) of the Act, penalty proceedings could be initiated only under section 271 of the Act and not under section 28(1)(c) of the Indian Income-tax Act, 1922. The following Explanation to section 271(1)(c) of the Act has been inserted by the Finance Act, 1964, with effect from April 1, 1964; "Where the total income returned by any person is less than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prove that the failure to file the correct income did not arise from any fraud or any gross or wilful neglect on his part and unless he did so, he should be deemed to have concealed the particulars of his income or furnished inaccurate particulars for the purpose of section 271 (1) (c) of the Act and that the position is that the moment the stipulated difference was there, the onus to prove that it was not the failure of the assessee or fraud of the assessee or neglect of the assessee that caused the difference shifted to the assessee, but it has to be borne in mind that though the onus shifted, the onus that was shifted was rebuttable. In so holding, the Supreme Court approved the decision of the Full Bench of the Punjab and Haryana High Court in Vishwakarma Industries v. CIT [1982] 135 ITR 652 holding that the application of the Explanation raised three legal presumptions, viz., (i) that the amount of the assessed income is the correct income and it is in fact the income of the assessee himself ; (ii) that the failure of the assessee to return the correct assessed income was due to fraud ; or (iii) that the failure of the assessee to return the correct assessed income was due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner attempted to discharge the presumption by virtue of the applicability of the Explanation to section 271(1)(c) of the Act and, therefore, the Tribunal was not right in having cancelled the penalty imposed on the assessee. We also find that the quantum of penalty imposed is also in order, for, at the relevant time, clause (iii) as applicable to section 271(1)(c) of the Act, provided for the levy of penalty in a sum, which shall not be less than, but which shall not exceed, twice the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. We find that the imposition of the penalty by the Inspecting Assistant Commissioner on the assessee has been done properly by invoking the Explanation to section 271(1)(c) of the Act and also bearing in mind the imposable quantum thereof. We, therefore, answer the first question referred to us in the negative and in favour of the Revenue. We may next consider the third question referred to us. We have earlier noticed how the Tribunal had misdirected itself with reference to the appropriate provision of law applicable to the case of the assessee and how on such an erroneous appr ..... 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