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TMI Blog1976 (4) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 31, 1967, the assessee-firm had filed a return in which it had declared a net loss of Rs. 3,29,304. Certain investments made by the partners of the assessee firm, who were also partners of two other firms, were the subject-matter of investigation by the income-tax department. The partners then approached the department by two petitions dated June 29, 1968, and February 12, 1969, for a settlement of their income-tax affairs and after discussions between the department and the assessee a settlement was arrived at, the terms of which were incorporated in an agreement dated September 27, 1969. Under that settlement the partners of the firm agreed that over and above the income returned by the three firms for the years 1964-65 to 1968-69, a sum of Rs. 7,00,000 may be added as income derived by them from undisclosed sources and that the said amount may be spread over between the assessment years 1964-65 to 1968-69 in proportion to the turnover disclosed by the assessee in respect of each of those years. The assessee had also agreed under that settlement that the minimum penalty prescribed under the Act may be levied against it for all those years. Pursuant to the said settlement the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made by the assessee firm itself in the agreement dated September 27, 1969, that the sum of Rs. 7,00,000 could be treated as business profits of the assessee not disclosed in the returns filed by it for the assessment years 1964-65 to 1968-69 and that the said income may be spread over those years and subjected to assessment, constituted sufficient proof that there was concealment. The Tribunal, however, accepted the second contention put forward by the assessee and held that the word "income" occurring in section 271(1)(c) "should normally refer to a positive figure only" and not a loss and that in a case where there is no total income at all there would be no scope for application of the provisions of section 271(1). The Tribunal also held that even where the total income is a positive figure the penalty proceedings cannot be in respect of any income higher than the total income as determined by the assessment proceedings and that, applying the said principle to the case on hand, the concealment by the assessee could not be said to be higher than Rs. 18,460. After having expressed the said view, the Tribunal, however, went on to hold that since in determining the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efeat the object and purpose of the said section. Vigorously supporting the legality and correctness of the Tribunal's decision setting aside the penalty levied against the assessee, the learned advocate for the assessee contended that the expression "income" occurring in sub-clause (iii) of section 271(1)(c) should be understood to mean the amount determined by the Income-tax Officer in the assessment order as the taxable income of the assessee for the concerned assessment year and that, in cases where the net result of the computation of total income made by the Income-tax Officer is a negative figure or a loss and there is no taxable income, no penalty is leviable under clause (c). According to the learned advocate, this is the only correct construction that can be placed on sub-clause (iii) because there cannot be any question of "concealment" by an assessee unless he had taxable income in respect of which a "concealment" could take place. On this basis it was argued by the learned advocate that the Tribunal was fully right in its view that the word "income" occurring in sub-clause (iii) "should normally refer to a positive figure only and not a loss" and that the total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person- (a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or (b) has without reasonable cause failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,-... (iii) in the cases referred to in clause (c), in addition to any tax payable by him, 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. Explanation.-Where the total income returned by any person is less than eighty per cent. of the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department has established concealment and a penalty could be imposed." When on the facts of the case which arose for decision before it, the Tribunal had already come to the specific finding that concealment of income by the assessee had been proved by the department and that a penalty could, therefore, be imposed against the assessee, there was no scope or occasion for raising and considering the question whether penalty would be leviable in cases where an assessee is found to have suffered a net loss and hence not to have had any "total income" for the concerned assessment year. We are, therefore, of the view that the first part of the question formulated by the Tribunal and referred to this court, namely, "whether the word 'income' obtaining in section 271(1)(c) of the Income-tax Act, 1961, should refer to a positive figure only and not to a loss ? ", cannot be said to be a question of law arising out of the order of the Tribunal and hence we decline to answer the same. The second part of the question does really arise in the case and that concerns the quantum of the penalty leviable against the assessee who had been found guilty of concealment of income under section 271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 'Although the Act nowhere in terms authorises the deduction of bad debts of a business, such a deduction is necessarily allowable. What are chargeable to income-tax in respect of a business are the profits and gains of a year; and in assessing the amount of the profits and gains of a year account must necessarily be taken of all losses incurred, otherwise you would not arrive at the true profits and gains'. Falsehood in accounts can take only two forms : either an item may be suppressed dishonestly or an item may be claimed fraudulently, and in penalising concealment of the particulars of one's income as well as deliberate furnishing of inaccurate particulars, section 28 penalizes both forms of falsehood. In the case before us it has been found as a fact that the assessee deliberately claimed a false deduction and in the light of the remarks made above, we are disposed to hold that the case of the assessee fell within the ambit of section 28. We accordingly dismiss this petition with costs." What this decision has laid down is only that the liability for penalty under section 28 of the Indian Income-tax Act, 1922 (corresponding to section 271(1)(c) of the Act), will be att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of inaccurate particulars. If, as contended by the assessee, the intention of Parliament was that the quantification of the penalty should be with reference to the assessee's "income" (meaning thereby the total income assessed) the concluding words occurring in the sub-clause after the expression "shall not exceed twice" need have been only "the income of the assessee" and it was wholly unnecessary for Parliament to use the words "the amount of the income in respect of which the particulars have been furnished". Parliament having deliberately added those words in the sub-clause it would be wrong to treat those words as a mere surplusage and the attempt of the court should be to find out the purpose underlying their use in the section. The words "in respect of which the particulars have been concealed or inaccurate particulars have been furnished" qualify the preceding expression "the amount of the income". By using those qualifying words the Parliament has made it clear that the quantification of penalty under sub-clause (iii) is to be made with reference to that amount of the income of the assessee in respect of which there was concealment of particulars or furnishing of inaccurat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his part. Far from furnishing any indication that the quantification of the penalty to be levied under sub-clause (iii) is to be made with reference to the total income as assessed, the language used by Parliament in the Explanation shows that where it was intended to refer to the taxable income as determined in the assessment order Parliament had taken care to use the expression "the total income as assessed under section 143, or section 144 or section 147", which words are significantly absent in the main body of sub-clause (iii). We may also refer to the recent amendment effected in clause (iii) of section 271(1)(c) by the Taxation Laws (Amendment) Act, 1975, though the amended provision is not applicable to the present case. The main body of the said sub-clause as it now stands after the amendment reads: "(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income: Provided that, if in a case falling under clause (c), the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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