United India Periodicals (P) Ltd. vs Inspecting Assistant ...
1994 Latest Caselaw 173 Del

ORDER

VIMAL GANDHI, J. M. :

These two appeals, one by the assessed, and the other by the Revenue, for the asst. yr. 1961-62, are directed against the order of the CIT(A). For the sake of convenience, both the appeals are being disposed of through this consolidated order.

2. The facts in brief are that the assessed-company in the relevant period was engaged in the business of printing and publishing an english weekly "Link". It also undertook such printing for others. The original assessment in this case was completed on 28th Feb., 1966, under s. 143(3) of the Act on a total loss of Rs. 2,22,316, which was subsequently reduced to Rs. 2,12,658 under s. 154 of the IT Act, 1961.

3. Subsequently on getting fresh information, the Assessing Officer concluded that income escaped assessment and, accordingly, reassessment proceedings were initiated. It was found that the assessed had received a loan of Rs. 1 lakh from M/s Globe Associates P. Ltd., New Delhi, a company under liquidation. In the books of account of the above company, the loan amount was debited on 13th Dec., 1960 and credited on 29th Dec., 1960. The corresponding entry of loan received was found in the assesseds books of account on 14th Dec., 1960, but there was no entry of repayment to M/s Globe Associates P. Ltd. on or about 29th Dec., 1960. The amount was carried forward from year to year and transferred to Suspense Account on 13th Dec., 1965. It was admitted that entry relating to repayment on 29th Dec., 1960 was correct. The assessed was asked to explain the source of repayment of loan to M/s Globe Associates P. Ltd. It was claimed that Dr. A. V. Baliga had received donations from different persons and those donations were utilised for repayment of the loan. The amount was remitted through one Shri S. L. Kapoor. The details of the donations received were not furnished, as Dr. Baliga was dead by the time the proceedings were taken. However, Shri S. L. Kapoor denied the transaction in the statement recorded by the Assessing Officer. The assessed further could not give the branch of the bank through which the amount was remitted to M/s Globe Associates P. Ltd. In the above background, the claim was rejected and Rs. 1 lakh was treated as the assesseds income from undisclosed sources.

4. In the reassessment proceedings, the Assessing Officer added another sum of Rs. 1,92,000 representing unexplained cost of construction of building at Link House, Bahadur Shah Zaffar Marg, New Delhi. The total cost of construction carried on in three asst. yrs. 1961-62, 1962-63 and 1963-64 was disclosed at Rs. 12,68,428. It was, however, found that, for obtaining loan from Bank, the assessed had furnished certificate from the architect, M/s Sathe & Kothari, New Delhi, dt. 14th June, 1968 estimating the value of the building at Rs. 23,36,680. Having regard to the above report, the value of the cost of construction of the building was taken at Rs. 23,36,680. The difference of cost of construction amounting to Rs. 6,87,771 was spread over in three years and a sum of Rs. 1,92,000 was added in the income of the assessed in the reassessment proceedings as unexplained investment.

5. The assessed impugned the above additions in appeal, but without any success.

6. The Assessing Officer also initiated penalty proceedings under s. 271(1)(c) of the IT Act in respect of the two additions made in the reassessment proceedings. After taking note of the finding recorded in the assessment order, as confirmed by the CIT(A), he held that the assessed concealed the particulars of income in respect of the two additions made in the reassessment. He levied penalty of Rs. 2,92,000 which represented 100% of the income held to be concealed.

7. The assessed impugned above penalty order in appeal before the CIT(A). The CIT(A) held that penalty under s. 271(1)(c) was exigible. However, with regard to the quantum of penalty, he thought it reasonable to levy penalty at 40% of the tax sought to be evaded. He held that as per law applicable, penalty at 100% of concealed income could not be imposed. The assessed is in appeal challenging the penalty sustained, whereas the Department has assailed the reduction in penalty allowed by the CIT(A).

8. We have heard the parties in these appeals. The principal questions to be decided are as under :

(a) What statutory provision is applicable for determining the question of levy and quantification of penalty under s. 271(1)(c) of the IT Act ?

(b) Whether, on the facts, penalty is exigible as per the relevant provisions applicable in this case ?

9. As far as the first question is concerned, the learned counsel of the assessed submitted that the matter has to be decided in accordance with the decision of the Hon'ble Supreme Court in the case of CIT vs. Onkar Saran & Sons (1992) 195 ITR 1 (SC). The learned Departmental Representative, on the other hand, argued that the issue is to be determined in accordance with the decision of the Hon'ble Supreme Court in the case of Varkey Chacko vs. CIT (1993) 203 ITR 885 (SC).

10. We have considered the decisions cited at the bar. In our considered view, the matter is not res integra and is fully covered by the decision of the Supreme Court in the case of CIT vs. Onkar Saran & Sons (supra). The decision cited on behalf of the Revenue which relates to the initiation of penalty proceedings under s. 274 of the IT Act also supports the view canvassed on behalf of the assessed. This is clear from the following observations available at pages 890/891 of the report (ITR) :

"A penalty for concealment of particulars of income or for furnishing inaccurate particulars of income can be imposed only when the assessing authority is satisfied that there has been such concealment or furnishing of inaccurate particulars. A penalty proceedings, therefore, can be initiated only after an assessment order has been made which finds such concealment or furnishing of inaccurate particulars. Who, at this point of time, has the authority to impose the penalty is what is relevant. Whoever this authority may be, he is obliged to impose such penalty as was permissible under the law in that behalf on the date on which the offence of concealment of income was committed, that is to say, on the date of the offending return. The two aspects must firmly be borne in mind, namely who may impose the penalty and in what measure."

11. It is clear from the aforesaid observations that penalty has to be computed as per the law existing on the date of filing the first return. Smt. Sinha, the learned Departmental Representative, made available to us the record showing the date of filing the original return. The said date is 26th July, 1961. Thus, the penalty, if any leviable, is required to be computed as per the statutory provision of s. 271(1)(c) of the IT Act existing on the aforesaid date.

12. Sec. 271(1)(c) of the IT Act, 1961 before its amendment w.e.f. 1st April, 1964 as also the relevant provision of s. 28(1)(c) of the IT Act, 1922 provided as under :

"Sec. 28 of 1922 Act

Sec. 27(1)(c) of 1961 Act :

Before amendment

After amendment

(1)If the ITO,the Tribunal in the course of any proceedings under this Act is satisfied that any person.

If the ITO or the AAC in the course of any proceeding under this Act is satisfied that any person

If the ITO or the AAC 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, income

(c) has concealed the particulars of his income or furnished inaccurate particular of such income

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such

he or it may direct that such person shall pay by may of penalty in the case referred to in cl. (a), in addition referred to the amount of the to income-tax, and super tax, him, if any, payable by him a sum not exceeding one and a half times that amount and in the income case referred to in cls, (b) and (c) IN a addition to any tax payable by hms a sum not exceeding one and half times that amount of income-tax and super-tax, if any, which would have been avoided if the income as returned by such person has been accepted as the correct income; referred (income)143 expenditure him making income disallowed person return fraud concealed of

he may direct that such person shall pay by way of penalty, (iii) in the cases referred ti in cl. (c), in addition to any tax payable by him, a sum which shall not be less than 20% but which shall not exceed one and a half times the amount of the tax, if any which would have been avoided if the income as returned by such person has been accepted as the correct income.

he may direct that such a person shall pay by way of penalty(iii) in the cases to cl. (c) in addition any tax payable by a sum which shall not be less than but which shall not exceed twice the amount of thein respect of which eh particulars have been concealed or inaccurate particulars have been furnished. Explanation: where the total income returned by any person is less than 80% of the total income (hereinafter in this Explanation to as the correct as assessed under s. or s. 144 or s. 147 (reduced by the incurred bona fide by for the purposes of or earning any income included in the total but which has been as a deduction ) such shall, unless he proves that the failure to the correct income did not arise from any or any gross or willful neglect on his part, be deemed to have the particulars of his income or furnished inaccurate particulars such income for the purposes of cl. (c) of this sub-section."

13. The provision of s. 28(1)(c) of the IT Act, 1922 were considered by their Lordships of the Supreme Court in the celebrated case of CIT & Anr. Anwar Ali (1970) 76 ITR 696 (SC). Their Lordships laid down the following proposition :

"The next question is that when proceedings under s. 28 are penal in character what would be the nature of the burden upon the Department for establishing that the assessed is liable to payment of penalty. As has been rightly observed by Chagla, C. J. in CIT vs. Gokuldas Harivallabhdas, the gist of the offence under s. 28(1)(c) is that the assessed has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and, therefore, the Department must establish that the receipt of the amount in dispute constitutes income of the assessed. If there is no evidence on the record except the explanation given by the assessed, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income.

Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting the explanation given by the assessed as false would, prima facie, be sufficient for establishing, in proceedings under s. 28 that the disputed amount was the assesseds income. It must be remembered that the proceedings under s. 28 are of a penal nature and the burden is on the Department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessed is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed, the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessed had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars."

14. Having examined the relevant provision as applicable to the case in hand, we proceed to examine the facts of the case to determine the second question. In this case, the Assessing Officer added a sum of Rs. 1 lakh on account of return of loan to M/s Globe Associates P. Ltd., the source of repayment not having been proved. It is clear from the assessment order as also from the order levying the penalty that penalty in respect of this sum was imposed as the assessed-company failed to explain its case and Mr. S. L. Kapoor, through whom the amount was claimed to be remitted, denied the transaction. The assessed may not have discharged the onus under s. 68 of the IT Act and addition under the above provision justified. But in the penalty proceedings, it was required to be appreciated that ten years had elapsed and by the time the reassessment proceedings were taken, Dr. Baliga was already dead. This important aspect of the case has not been considered. But, assuming that the Revenue had established that the claim put forward by the assessed was false, still it was to be established that the disputed amount of Rs. 1 lakh constituted the income of the assessed. The mere fact that the explanation tendered by the assessed was found to be false, it could not follow that the disputed amount constituted the assesseds taxable income. The aforesaid proposition emerges from the decision of Anwar Ali, extracted earlier. The Revenue having failed to establish that the disputed amount of Rs. 1 lakh was the taxable income of the assessed, which was consciously concealed, the finding as required under s. 271(1)(c) could not be recorded on the material available on record. The penalty on the facts of the case, thus, has to be held not to be exigible.

15. The other addition of Rs. 1,92,000 is based on pure estimate of cost of construction. The assessed, during the course of reassessment proceedings furnished a fresh certificate from M/s Sathe & Kothari, New Delhi, estimating the cost of construction on 24th June, 1962 at Rs. 16,96,546 against Rs. 16,48,909 disclosed as per the books of account of the assessed. The second certificate has not at all been commented upon by the lower authorities and addition sustained only on account of the difference in the two estimates relating to the cost of construction. A part of difference has been treated as concealed income or the income in respect of which the assessed deliberately furnished inaccurate particulars. However, having regard to the ratio of the decision in the case of Anwar Ali, the aforesaid conclusion regarding addition sustained purely on estimate, could not have been reached. On the facts of the case, particularly in the light of the revised estimate of cost of construction, filed by the assessed, it could not be held that the addition made in the assessment order was the taxable income of the assessed. There is no question of treating the addition as concealed income.

16. Thus, in respect of both the items of addition, the penalty under s. 271(1)(c) is held to be not exigible. The levy of penalty is, accordingly, cancelled.

17. In the result, the assesseds appeal is allowed, and the Revenues appeal is dismissed.