TMI Blog1975 (7) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... een avoided ?" The relevant assessment years are 1963-64, 1964-65 and 1965-66. In the relevant years the assessee, F. C. Agarwal, was carrying on business in his individual capacity. In respect of these three years the assessee filed returns which were later revised as follows: Assessment year 1963-64: Original return showing total income of Rs. 30,750 was filed on May 22, 1964. Revised return showing total income as Rs. 2,74,189 was filed on March 20, 1968. Assessment year 1964-65: Original return showing total income as Rs. 36,315 was filed on May 22, 1964. Revised return showing total income as Rs. 3,35,181 was filed on March 20, 1968. Assessment year 1965-66: Original return showing Nil income was filed on September 13, 1965. Revised return showing a total income as Rs. 81,030 was filed on March 20, 1968. Before the Income-tax Officer the assessee stated that he had not maintained any regular books of account and, therefore, the returns had been filed on estimate of certain net profits on sales. The Income-tax Officer completed the assessments by estimating the sales at slightly higher figures and by adopting the rate of net profit as shown by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that if an assessee conceals income while filing the original returns, the filing of a revised return cannot absolve him from the default already committed. The Tribunal further observed that on a specific query being made, the counsel for the assessee could not explain the basis on which the original returns had been prepared and submitted. The Tribunal rejected the submission of the assessee to the effect that when he filed the original returns showing a much lower income he was not aware of the correct income which has been shown in the revised returns and that the assessee was acting under a bona fide belief. The Tribunal also did not accept the argument made on behalf of the assessee that the quantum of penalty should be calculated only on the basis of the difference between the tax on the income shown in the revised return and the tax on the assessed income. The Tribunal held that the concealment having taken place in the original return the tax that would have been avoided had that return been accepted would be the correct figure to be taken into consideration while calculating the penalty under section 271(1)(c) of the Act. The Tribunal also held that the totality of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the purposes of clause (c) of this sub-section." In the instant case for the assessment year 1963-64, the assessee showed in the revised return Rs. 2,43,439 as income in addition to the income shown in the original return. Similarly, for the assessment year 1964-65, the assessee showed in the revised return Rs. 2,98,866 as income in addition to the income shown in the original return. So also for the assessment year 1965-66, the assessee showed in the revised return Rs. 81,030 as income in addition to the income shown in the original return. These sums of Rs. 2,43,439, Rs. 2,98,866 and Rs. 81,030 for the respective years are admittedly the incomes of the assessee which were not shown in the original returns but have been shown in the revised returns. In Commissioner of Income-tax v. Khoday Eswarsa and Sons, the Supreme Court has observed as follows: "Before we conclude we may refer to the decision of this court in Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original order of assessment." In K. C. Trunk and Bucket Factory v. Commissioner of Income-tax, a Full Bench of this court has observed as follows: "From the above observations of the Supreme Court it is found that penalty proceedings are penal in character and such proceedings may be said to be quasi-criminal proceedings. Since the character of the proceedings is penal it is the burden of the department to establish that the assessee is liable to payment of penalty. The department must establish that the receipt of the amount in dispute constitutes income of the assessee and that the assessee has concealed the particulars of such income. The finding given in the assessment proceeding for determining or computing the tax cannot be said to be conclusive but it is good evidence which may be considered for arriving at the finding in the penalty proceedings. Before a penalty can be imposed the entirety of circumstances must reasonably point that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars." It is now settled law that in order to sustain a penalty unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome, he was acting under a bona fide belief. The difference between the original return and the revised return was so staggering that the argument of inadvertent mistake cannot be accepted." In the assessment order it has been observed by the Income-tax Officer as follows: "The assessee has however maintained no production account or any other reliable record of quantity of raw materials consumed, finished goods, quantity of sales and stocks. As a matter of fact no regular and systematic books of accounts have been maintained and the assessee has himself resorted to an estimate to find out his net profits as also some items of the assets and liabilities." Thus, the assessee's case appears to be that though he did business of lakhs of rupees he had no regular books of account at the time of filing the original returns and, therefore, the correct income could not be shown, and that it was only when the property and business of the assessee were taken over by a limited company then the mistakes and omissions were discovered in the earlier returns. This plea of the assessee that the mistakes or omissions in the original returns were inadvertent and bona fide has not been accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case is found to be less than 80% of the total income assessed in each case. That being so, the Explanation is fully and squarely applicable in the instant case and the finding of the Tribunal is that in any view of the matter the totality of the circumstances clearly point out that it was a case of gross or wilful neglect on the part of the assessee and the assessee has failed to prove that it was not a case of gross or wilful neglect on his part in furnishing the original returns. This finding cannot be said to be bad in law or otherwise perverse. Mr. S. K. Ghose, the learned counsel for the petitioner, has submitted that since the revised returns were filed voluntarily by the assessee before the assessments were made and these returns were filed as provided under sub-section (5) of section 139 and acted upon, the question of penalty for concealment of income or furnishing inaccurate particulars of income does not arise. The learned counsel for the assessee has submitted that if the revised return under sub-section (5) of section 139 is filed voluntarily after the assessee has himself discovered any omission or any wrong statement in the original return, clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed return purported to be under sub-section (5) is filed, that will not be considered as a revised return under sub-section (5). As a proposition of law it may be correct that if a revised return as contemplated under sub-section (5) is submitted before the assessment is made after the assessee having discovered some omission or some wrong statement in the original return and in the revised return he makes correction of the omission or the wrong statement, a penalty proceeding for concealment of the particulars of income or furnishing inaccurate particulars of such income as contemplated under clause (c) of sub-section (1) of section 271 may not be attracted. But to avoid the penalty proceeding is contemplated under section 271(1)(c) by reason of submission of revised return, the revised return itself must be within the correct ambit and scope of sub-section (5) of section 139 of the Act. If it cannot be said that a revised return in fact does come within the correct ambit and scope of section 139(5), then immunity from section 271(1)(c) cannot be availed of by the assessee. In the instant case let us examine whether the revised returns filed by the assessee for the relevant ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued instructions in an advertisement dated January 5, 1971, in the Statesman wherein the Board has stated to the effect that if the original return filed by an assessee is false he may file a revised return to avoid the consequences of discovery. It would be convenient to quote the advertisement published in the issue of the Statesman, dated January 5, 1971: "FILING FALSE TAX RETURNS: Do YOU KNOW THE CONSEQUENCES ? Beware: Filing of false tax returns is severely punishable under the Income-tax, Wealth-tax and Gift-tax Acts. It may cost you more than what you have concealed. Under the Income-tax Act, a minimum penalty equal to the amount of the concealed income and a maximum penalty equal to twice that amount, is prescribed. Besides, there can also be prosecution and conviction--rigorous imprisonment for not less than six months which can be extended to two years. Similarly, evasion of wealth-tax is also severely punishable under the Wealth-tax Act. A minimum penalty of an amount equal to the value of the asset so concealed or to the extent of understatement in the value of an asset or overstatement in the value of any debt, is prescribed. This penalty can be as hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be issued-- (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions. (2) Without prejudice to the generality of the foregoing power,-- (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 143, 144, 147, 148, 154, 155, 210, 271 and 273 or otherwise), general or special orders in respect of any class of incomes or class of cases, setting forth directions or instructions (not being prejudicial to assessee) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of section 12(1B) would lead to extreme hardship, because it would have covered the aggregate of all outstanding loans of past years and that may have imposed an unreasonably high liability on the respective shareholders to whom the loans might have been advanced. In order that the assurance given by the Minister in Parliament should be carried out, a circular (No. 20(XXI-6)/55) was issued by the Central Board of Revenue on the 10th May, 1955. It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under section 5(8) of the Act." The learned counsel also has drawn our attention to the decision of the Supreme Court in Ellerman Lines Ltd. v. Commissioner of Income-tax wherein the following observations appear at pages 920-921: "The learned Solicitor-General appearing for the revenue at one stage of his arguments contended that the instructions issued by the Board of Revenue cannot have any binding effect and those instructions cannot abrogate or modify the provisions of the Act. But he did not contend that rule 33 is ultra vires the Act. The instructions in question merely lay d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re made on March 23, 1968, and the orders of penalty in the cases were passed by the Inspecting Assistant Commissioner of Income-tax on March 21, 1970. That being so, the revised returns in the instant cases were not filed in pursuance of the advertisement issued by the Central Board of Direct Taxes on January 5, 1971, and the provisions of the substituted section 119 and more particularly the provisions of sub-section (2) of section 119 came into force only with effect from 1st April, 1971. In our opinion, therefore, in any view of the matter the assessee in the instant case is not entitled to avoid the consequences of submission of false return by filing revised return on March 20, 1908. We have already held that the revised returns in the instant case do not come within the proper ambit and scope of sub-section (5) of section 139. In the result we find that the Tribunal was correct in holding that the penalties under section 271(1)(c) of the Income-tax Act read with Explanation to that section are justified in respect of the assessment years 1963-64, 1964-65 and 1965-66. Let us now consider the second question of law. The method of calculating the penalty in a case comi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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