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Premji Haridas and Co. Vs. Commissioner of Income-tax, Bombay City-ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 55 of 1966
Judge
Reported in[1977]110ITR315(Bom)
ActsIncome Tax Act, 1961 - Sections 271(1), 274(1), 297, 297(1) and 297(2)
AppellantPremji Haridas and Co.
RespondentCommissioner of Income-tax, Bombay City-ii
Appellant AdvocateC.R. Mehta, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
.....by appellate tribunal when it finally disposed of matter - assessment completed when income-tax officer completed his work and passed his order - in case where income-tax officer's order set aside and matter remanded back it is not possible to come to conclusion that income-tax officer be said to have completed his work and passed his order. - - 10,000 on account of bad debts, which claim was disallowed in the accounts of meghji jasraj and thakersey narsey (rs. in regard to bad debts (which had been disallowed -rs. 10,000 on account of bad debts done again. 10,000 on account of bad debts. the question of disallowance of bad debts was, however, carried in appeal to the tribunal and the tribunal, by its order, directed deletion of that amount from the assessment. was concerned, the..........court took the view that the assessment must be taken to have been completed when the income-tax officer completed his work and passed his order. in a case where the income-tax officer's order is set aside and the matter is remanded back, it is not possible to come to the conclusion that the income-tax officer could be said to have completed his work and passed his order and had in fact completed the assessment in respect of the assessee. we do not, therefore, think that this decision assists mr. mehta. 10. having regard to the above discussion, we find that question no. 4 will have to be answered in the affirmative and in favour of the department. 11. in view of the aforesaid answer which we have given to question no. 4, question no. 2 does not survive. 12. assessee will pay the costs.....
Judgment:

Tulzapurkar, J.

1. In all, four questions have been referred to us for our opinion by the Tribunal at the instance of the assessee under section 66(1) of the Income-tax Act, 1922, viz. :

(1) Whether, on the facts and in the circumstances of the case, the levy of penalty under the Income-tax Act, 1961, violated the assessee's fundamental rights as guaranteed under article 14 of the Constitution

(2) Whether, on the facts and in the circumstances of the case, it could be said that the penalty proceedings were not commenced before the completion of the assessment proceedings and that the penalty levied under section 271(1)(c) was liable to be cancelled on that account

(3) Whether, on the facts and in the circumstances of the case, the penalty leviable had to be determined by reference to the difference between the income returned and the income assessed or by reference to the amount concealed

(4) Whether, on the facts and in the circumstances of the case, and in view of the order of the Tribunal in I. T. A. No. 11700 of 1960-61 the assessment order for the year 1954-55 dated July 31, 1957, in so far as it related to the income from business in the name of Chhaganlal Velji & Co. could be said to be an order completed on or after the 1st April, 1962, giving rise to the jurisdiction of the Inspecting Assistant Commissioner to levy a penalty under section 271(1)(c)

2. At the outset it may be stated that Mr. Mehta, appearing of the assessee, has not pressed questions Nos. 1 and 3 in view of the fact that these have been covered by the decisions of the Supreme Court. In view of the decision of the Supreme Court in the case of Jain Brothers v. Union of India reported in : [1970]77ITR107(SC) question No. 1 is not pressed and, therefore, the same is not answered. Similarly, in view of the Supreme Court decision in the case of Mansukhlal and Brothers v. Commissioner of Income-tax : [1969]73ITR546(SC) question No. 3 is also not pressed and the same is not answered.

3. As regards questions Nos. 2 and 4, Mr. Mehta stated before us that out of them principal question which arises is question No. 4 and depending upon the manner in which the same is answered, question No. 2 may survive or may not survive. We could, therefore, proceed to deal with question No. 4.

4. The assessee, M/s. Premji Haridas & Co., is a registered firm doing business in oil, oil-seeds, raw wool and as commission agents and general financiers. Its partners in the relevant year of account were Shri Premji Velji, Shri Haridas Velji, Shri Chhaganlal Velji and Shri Jadhavji Velji. The question relates to assessment year 1954-55, the corresponding previous year being S.Y. 2009 (ending 6th November, 1953). In the original assessment of the firm that was made for the assessment-year 1954-55 the total income of the firm was assessed at Rs. 3,79,805. This included two items, viz., Rs. 28,747 being profit from business done in the name of the Chhaganlal Velji & Co. and Rs. 10,000 on account of bad debts, which claim was disallowed in the accounts of Meghji Jasraj and Thakersey Narsey (Rs. 5,000 each). It appears that by his order dated July 31, 1957, the Income-tax Officer made these two additions of the aforesaid two amounts, the first one on the ground that the firm of Chhaganlal Velji & Co. was a benami concern of the assessee only and the profits arising from the business done in that name were really the profits of the assessee and the second item on the ground that the two amounts of Rs. 5,000 each were personal loans advanced to the parties concerned. As regards the addition made of Rs. 28,747 being the profit from the business done in the name of Chhaganlal Velji & Co., the Income-tax Officer recorded a finding that the assessee-firm had not disclosed the income from this source in its return and had committed a default within the meaning of section 28(1)(c) and, therefore, directed that notice under section 28(3) should be issued to the firm calling upon the firm to show cause why penalty proceeding should not be initiated. The matter was ultimately taken up to the Tribunal in I. T. A. No. 11700 of 1960-61 and the Tribunal, by its order dated March 2, 1962, confirmed addition or inclusion of the profits from the business of Chhaganlal Velji & Co. in the total income of the assessee. In regard to bad debts (which had been disallowed - Rs. 5,000 each) the Tribunal set aside the assessment order of the Income-tax Officer and remanded the matter to enable him to scrutinise the items taking into account the relevant facts and considering the claim according to law. Thereafter, the Income-tax Officer made a fresh assessment on July 20, 1963, making an addition of Rs. 10,000 on account of bad debts done again. In other words, after examining the relevant material that was produced before him the Income-tax Officer reiterated his earlier view that these items were required to be added or included in the income of the assessee. While passing his assessment order dated July 20, 1963, he directed that notice under section 274(1) for default under section 271(1)(c) for furnishing wrong particulars be issued. On July 25, 1963, a regular notice to show cause why the penalty should not be imposed was issued and served on the assessee and the case was then referred to the Inspecting Assistant Commissioner, who by his order dated may 5, 1965, levied a penalty of Rs. 18,000 under section 271(1)(c) by reference to two items, Rs. 28,747 being profit in the name of Chhaganlal Velji & Co. and Rs. 10,000 on account of bad debts. The question of disallowance of bad debts was, however, carried in appeal to the Tribunal and the Tribunal, by its order, directed deletion of that amount from the assessment. The assessee appealed to the Tribunal against the order of the Inspecting Assistant Commissioner levying penalty challenging that order on several grounds. Inter alia, it was contended that in so far as penalty that was levied on account of inclusion of the profit of Rs. 28,747 in respect of business done in the name of Chhaganlal Velji & Co. was concerned, the Tribunal had confirmed the said inclusion which had been initially done by the Income-tax Officer and, therefore, that inclusion had become final and in respect of that addition the assessment was complete by reason of the Income-tax Officer's order dated July 31, 1957, and therefore, the penalty proceedings, if any, should have been initiated and completed under the old Act of 1922 and not under the new Act of 1961. This contention was negatived by the Tribunal principally on the ground that the Tribunal had by its order dated March 2, 1962, set aside the assessment order passed by the Income-tax Officer and had sent the matter back to him to enable him to scrutinise the item in regard to bad debts after taking into account the relevant facts and for considering the claim of the assessee according to law and, therefore, the penalty proceedings had been rightly initiated and concluded by the Inspecting Assistant Commissioner under the 1961 Act. At the instance of the assessee question No. 4 set out at the commencement of the judgment has, therefore, been referred to us for our opinion

5. Mr. Mehta, appearing for the assessee, has strenuously contended before us that though the Tribunal had set aside the Income-tax Officer's order dated July 31, 1957, it was only in regard to the item pertaining to bad debts that the Tribunal had given the requisite directions to the Income-tax Officer and that in fact so far as the addition made on account of profits earned in business in the name of Chhaganlal Velji & Co. was concerned, the Tribunal had actually confirmed that addition or inclusion in the income and, therefore, he urged that the assessment must be regarded as having been completed on July 31, 1957, when the Income-tax Officer had made the addition of Rs. 28,747. He further pointed out that in fact while passing the order dated July 31, 1957, the Income-tax Officer has satisfied himself that the penalty proceedings were required to be initiated and he had directed notice under section 28(3) of the old Act to be issued against the assessee. That being the position on facts, he contended that the penalty proceedings having been initiated under the old Act by the Income-tax Officer the same ought to have been continued and completed under the old Act and not under the new Act and, therefore, the penalty actually imposed by the Inspecting Assistant Commissioner, levying penalty of Rs. 18,000 under the new Act, was bad in law. It is not possible to accept this contention of Mr. Mehta for the reasons which we shall presently indicate.

6. In respect of his contention reliance was placed by Mr. Mehta upon clause (f) of sub-section (2) of section 297 of the Income-tax Act, 1961. The question is whether the instant case falls under clause (f) or (g) of sub-section (2) of section 297 and, therefore, it will be desirable to set out both the clauses. By section 297(1) the Indian Income-tax Act, 1922, has been repealed and sub-section (2) of section 297 provides for certain savings as indicated therein and that provision runs as follows :

'297. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act), - ...

(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed;

(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April 1962, may be initiated and any such penalty may be imposed under this Act; .......'

7. The question is whether the instant case falls under clause (f) as contended for by Mr. Mehta for the assessee or under clause (g) as contended for by Mr Joshi. The crucial test on this aspect of the matter is as to when the assessment proceedings could be said to be completed in the instant case, whether they were completed before 1st April, 1962, or they were completed on and after 1st April, 1962; in the former case clause (f) will apply, while in the latter case clause (g) will apply. What has been urged by Mr. Mehta is that in the instant case the Income-tax Officer by his order dated July 31, 1957, had made an addition of Rs. 28,747 in the income of the assessee (being profits of the business done in the name of Chhaganlal Velji & Co.). This part of the Income-tax Officer's order was confirmed by the Tribunal on March 2, 1962, and he further pointed out that it was because of the concealment of income on the part of the assessee that the Income-tax Officer in his order dated July 31, 1957, had directed notice under section 28(3) of the old Act being issued to the assessee-firm. Having regard to these facts he urged that qua the inclusion of this item of profits arising from business done in the name of Chhaganlal Velji & Co. The assessee's assessment could be said to be completed on or before 1st April, 1962, and even penalty proceedings could be said to be initiated by the Income-tax officer under the old Act and, therefore, it was a case covered by clause (f) and the penalty levied under the provisions of the new Act would be illegal and invalid. It is not possible to accept this submission for the simple reason that the Tribunal, by its order dated March 2, 1962, had actually set aside the assessment order that had been passed by the Income-tax Officer on July 31, 1957, and not only had the order been set aside but the Tribunal had sent the matter back to the Income-tax officer 'to enable the Income-tax Officer to scrutinise the above items (items pertaining to bad debts) taking into account the relevant facts and consider the claims according to law'. It is true that in regard to these items pertaining to bad debts that the initial assessment order was set aside and the matter was remanded back and it is also true that in fact the inclusion of Rs. 28,747 had been confirmed by the Tribunal. But all the same, the initial assessment order having been set aside and the matter having been remanded back to the Income-tax Officer it can never be said that the assessment of the assessee was completed before 1st April, 1962, for it was after such remand that the Income-tax officer took fresh evidence, considered the items which he was directed to consider and after considering the fresh material that was placed before him he passed fresh assessment order on July 20, 1963. It may be stated that this order dated July 20, 1963, has been in terms passed by the Income-tax Officer under section 23(3) consequent to the order under section 33 of the Act. But apart from this aspect of the matter, by reason of remand it is obvious that there was no assessment order in existence at the time when the Tribunal passed its order dated March 2, 1962; in fact, there was no assessment at all in existence and no demand notice could be issued and in that sense it is difficult to say that the assessment had been completed before 1st April, 1962. The assessment order could be said to have been completed for the assessment year 1954-55 only on July 20, 1963, when the Income-tax Officer after remand passed his fresh order. In this view of the matter, in our view, the case would clearly fall under clause (g) of sub-section (2) of section 297 and, therefore, penalty proceedings could be initiated under the new Act and the Inspecting Assistant Commissioner's order levying penalty of Rs. 18,000 under the new Act was perfectly justified.

8. Mr. Mehta has relied upon the decision of the Kerala High Court in the case of V. Damodaran v. Commissioner of Income-tax : [1974]96ITR335(Ker) . In that case, for the assessment years 1953-54 and 1955-56 to 1958-59 instead of paying advance tax as per notices of the Income-tax Officer under section 18A(1) of the Indian Income-tax Act, 1922, the assessee filed estimate under section 18A(2) and, on the basis of the said estimates, paid advance tax. In all those years, the income so estimated was far less than the income shown in the returns filed by the assessee and the income assessed was much higher than the income returned. The Income-tax Officer passed penalty orders under section 18A(9)(a) of the Act in respect of all the years and the orders were confirmed on appeals to the Appellate Assistant Commissioner and the Appellate Tribunal. On a reference to the High Court one of the contentions urged was that for the assessment years 1957-58 and 1958-59, the Income-tax Act of 1961 was applicable and not the Act of 1922, for the reason that the assessments for those years should be held to have been completed only when the appellate orders of the Appellate Tribunal were passed on September 25, 1963, and June 4, 1965, respectively, and not on the dates that the Income-tax Officer made his orders of assessment on October 15, 1958, and July 20, 1959, respectively, and the Kerala High Court took the view that the assessment should be held to have been completed when the Income-tax Officer made his assessment orders and section 297(2)(f) which makes the Act of 1922 applicable for levying the penalty will govern and not section 297(2)(g). In our view, this decision is not of much assistance to Mr. Mehta, for, on facts, there is no similarity between the instant case before us and the case decided by the Kerala High Court. In the first place, there does not appear to be any reversal or setting aside of the Income-tax Officer's order by the Appellate Tribunal in the case before the Kerala High Court, whereas in the instant case before us the Income-tax Officer's order dated July 31, 1957, has actually been set aside by the Tribunal and the matter was remanded back to the Income-tax Officer for disposal of the matter according to law after the directions were given to him to deal with the two items of bad debts, the finding of the Income-tax Officer in respect of which was not accepted by the Tribunal. Secondly, even while taking the view that the assessment must be deemed to have been completed when the Income-tax Officer passed his initial order and not when the Appellate Tribunal disposed of the matter finally, the Kerala High Court has made some significant observations, which run thus (See : [1974]96ITR335(Ker) ) :

'As we have already indicated, the Supreme Court considered in that case the expression 'proceedings for the assessment' which evidently connoted the entire proceedings, whereas the expression we have to consider in clause (f) is 'assessment completed '. It cannot be said that an assessment is completed only when the Tribunal or the High Court ultimately pronounces on its correctness : It is completed when the assessing authority completes his work and passes an order.'

9. Presumably, in the case before the Kerala High Court the correctness of the Income-tax Officer's orders was confirmed by the Appellate Tribunal when it finally disposed of the same and it was in the context of that position that the Kerala High Court took the view that the assessment must be taken to have been completed when the Income-tax Officer completed his work and passed his order. In a case where the Income-tax Officer's order is set aside and the matter is remanded back, it is not possible to come to the conclusion that the Income-tax Officer could be said to have completed his work and passed his order and had in fact completed the assessment in respect of the assessee. We do not, therefore, think that this decision assists Mr. Mehta.

10. Having regard to the above discussion, we find that question No. 4 will have to be answered in the affirmative and in favour of the department.

11. In view of the aforesaid answer which we have given to question No. 4, question No. 2 does not survive.

12. Assessee will pay the costs of the reference.


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