1. The questions referred to us in this reference under s. 256(1) of the I. T. Act, 1961 (referred to hereinafter as : the said ACt'), made at the instance of the Commissioner, is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in sustaining the levy of penalty of Rs. 20,0000 and Rs. 10,000 for the assessment years 1966-67 and 1967-68 respectively ?'
2. The relevant facts, somewhat summarized, are as follows :
3. The assessment year with which we are concerned are assessment years 1966-67 and 1967-68. The assessee is a registered firm carrying on business in hardware, cement sheets and so on. It filed its return of income for the assessment year 1966-67, declaring the income at Rs. 75,544. Along with this return, copies of cement trading account, personal account of the partners, etc., were filed, but no balance-sheet appeared to have been defiled along with the return of income. The herein was adjourned from 13th June, 1967, to 24th June, 1967. On that day the scrutiny of books by the ITO revealed certain cash credits in some closed accounts, which the assessee was called upon to explain. Thereafter, some notices were issued buy the ITO which were not replied to. It is common ground that no satisfactory explanation was given at the said hearing regarding the cash credits. On 24th February, 1968, one of the partners of the assessee attended and filed a revised return showing an additional income of Rs. 60,000. In a statement accompanying the revised return the assessee admitted that there were some un-vouched sales which were not accounted for in the books of account and which were shown as advances from certain parties and that these seals were disclosed in the revised return in the assessee's general trading account. What wa submitted was that these un-vouched sales were not properly disclosed in the books was that these un-vouched sales were not properly disclosed in the books of account of the assessee by reason of the error of the accountant (Mehtaji), which explanation was reject by the ITO. The ITO held that the undeclared sales should be treated as relating to the trading account other than the genial trading account, that is, in the cement trading account, as he was of the view that these sales must be of cement;,. He treated this amount as a revenue receipt in respect of trading other than in the general trading account. He imitated penalty proceedings as early as 24th February, 1968, on the ground that the assessee admitted concealment of income of Rs. 60,000 on the basis of the income shown in the revised return. These proceedings were initiated under s. 271(1)(c) of the said Act read with s. 274 thereof. The notice was admittedly in the general from, on the ground that the assessee has concealed particulars of its income and deliberately furnished inaccurate particulars thereof. The ITO has also added an amount of Rs. 82,874 by estimating gross profits at 17 per cent. in the general trading account.
4. Regarding the assessment year 1967-68, the assessee filed a return of income on 14th August, 1967, declaring a total income of Rs. 1,34,504. For this assessment year also the admitted position was that certain un-vouched sales were not recorded in the boo, ms of account, but the amounts thereof were shown as temporary advances from various parties. The net amount of such un-vouched sales for the assessment year 1967-68 was about R%s. 13,348. The ITO added the said amount to the income other than in the cement trading account, and he further made an estimate of seal and gross profit in the general trading account, independently of the additions on account of suppressed sales. He also initiated penalty action under s. 271(1)(c) read with s. 274 of the said Act, and that too on the same footing namely, m of admittedly suppressed sales. It many be mentioned that in the result the ITO added an amount of 1,42,358 to the disclosed income of the assessee for the assessment year 1966-67, and add an amount of Rs. 36,691 to the disclosed income of the assessee in respect of the assessment year 1967-68.
5. There were appeals preferred by the assessee against these order to the AAC. In respect of the assessment year 1996-67, the AAC took the view that the amount of Rs. 60,000 represented profit on account of suppressed sales in the general trading account and not in the cement trading account as held by the ITO. He, however, pointed out that as a separate addition by way of extra gross profit on an estimate had been made by him in the general trading account of the assessee, he did not further add the amount of Rs. 60,000 to the disclosed income of the assessee, and he deleted the addition made by the ITO. It may be mentioned here that the AAC held that the amount of sales in the general trading account should be adopted at Rs. 8,05,036 in the place of the declined sales of Rs. 7,80,678. The AAC also adopted the figure of 17 per cent. as an estimate of the gross profits on the sales in the general trading account. As a result, in the place of th amount of Rs. 1,42,358 to the disclosed income of the assessee. No appeal was prefer by either side against this order.
6. As far as the assessment year 1967-68 is concerned, all that is material is that in place of Rs. 36,691 added by the ITO to the disclosed income of the assessee, the AAC only upheld addition of Rs. 13,349, being the amount of profits on the admittedly suppressed sales. There was an appeal against this order preferred by the Revenue to the Income-tax Appellate Tribunal but the same was dismissed.
7. Now coming to the question of gently with which we are directly concerned, after issuing notices, as we have set out earlier the ITO has referred the matter to the IAC, as the penalty, in his view, was likely to exceed Rs. 1,000. In respect of the assessment year 1966-67, the IAC took the view that there was admitted concealment of income to the extent of Rs. 60,000. He held that the filing of the revised return by the assessee was not a voluntary one, but wa as a result of the detection of concealment of the suppressed sales by the ITO. He held that there was no satisfactory explanation by the assessee for the non-disclose of such sales. After taking all the facts and circumstances o the case into account, he levied a penalty of Rs. 90,000 for the said assessment year. In respect of the assessment year 1967-68, the IAC held that the fact of suppression of sales to the extent of Rs. 13,348 has been accepted by assessee. For th same reasons, as given by the assessee and levied a penalty of Rs. 10,000. The only difference of which some note may be taken is that in the case of there assessment year 1966-67, the order levying penalty, which was passed on 9th March, 1971, was passed before the AAC disposed of the appeals on 17th December, 1971, whereas in respect of the assessment year 1967-68, the order levying penalty was passed on the same day, that is 9th March, 1971, but the appeal against the assessment had been disposed of earlier on July 5, 1969, by the AAC.
8. The assessee preferred appeals to the Income-tax Appellate Tribunal against th aforesaid order s of the IAC levying penalty. These appeals were disposed of by the Tribunal by a common judgment. The Tribunal pointed out that it was an undeniable fact that there wa suppression of sales and there was suppression of income,. The Tribunal referred to the letter of the assessee dated 23rd FEbruary, 1968 making this position unmistakably clear. In the said letter, which was addressed by chartered accountant of the assessee on behalf of the assessee, the assessee has admitted that it has made certain sales of goods traded by them in the general trading account and the sales were un-vouched sales and as such were not accounted for in the books of account s sales but were shown as receipts from certain as temporary advances. The assessee further admitted that is was for this reason that the revised return of income was filed. The Tribunal, however, reduced the penalty in respect of the assessment year 1966-67 to Rs. 20,000, but upheld the penalty at Rs. 10,000 levied for the assessment year 1967-68.
9. The submission of Mr. Dastur, learned counsel for the assessee, is that the neither proceedings levying penalty are vitiated because the notice for giving reasonable opportunity to the assessee to show case against the levy of penalty was issued by the ITO on the footing of his conclusion that there were suppressed sales of Rs. 60,000 in the cement trading account, whereas the AAC took the view that these suppressed sales were not in the cement trading account but in the general trading account. It was further contended by him that the whole basis of the said notice has been rendered nugatory, because the AAC, in respect of the assessment year 1966-67, has not added Rs. 60,000 as the income on account of suppressed sales, but stated that he was not making the said addition as he was of the view that this amount was covered in his estimate of sales in the general trading account and the gross thereon. It was further contended by him that even in respect of there assessment year 1967-68, the position was the same save that the amount in question was Rs. 13,348.
10. It appears to us little difficult to accept the submission of Mr. Dastur. WE may point out that s. 271 of the said ACt deals with the question of penalty for failure to furnish returns, comply with notices, concealment of income and so on. The relevant portion of s. 271 runs thus :
'271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person-......
(c) has concealed the particulars of his income of furnishes inaccurate particulars of such income.
he may direct that such person shall pay be way of penalty-......'
11. Sub-section (1) of s. 274 states that no order imposing a penalty under the chapter shall be made unless the assessee has been hears, or has been given a reasonable opportunity of being hears. Now, in the present case, the questions really is whether the assessee has been given a reasonable opportunity of being heard. The notice issued by the ITo was on the footing that in the assessment year 1966-67 the assessee has suppressed sales, resulting in a profit of Rs. 60,000. Similarly, in respect of the assessment year 1967-68 the notice issued by the ITO was on the footing that the assessee has suppressed sales, resulting in a profit of Rs. 13,348. That this wa correct is, m in effect, admitted by the assessee. It was admitted by the assessee that it has not disclosed several sales in its books of account and that the aforesaid amounts represented profits made on those sales. This position is clear from the facts which we have set out earlier and the documents on record. The ITO, of course, took the view that these sales were in cement trading account. As far as the AAC is concerned, the took the view that the said sales were suppressed by the assessee is admitted, but theses sales were in the general trading account. Both the ITO and the AAC held that these amounts represented the profits of the suppressed sales. WE fail to see, therefore, how it can be said that there was any change in the footing on which the said notices were issued by the order of the AAC. The notice all along made it clear that what the assessee has to show case against and what the assessee has to explain was whether these sales were suppressed sales and whether they resulted in a profit of Rs. 60,000 for the assessment year 1966-67 and of Rs,. 13,348 for the assessment year 1967-68. In fact, the assessee could not have shown any cause, m because these facts were admitted by the assessee. The only explanation which the assessee could give was as to whether these suppressions were made deliberately or as a result of inadvertent errors in its books of account. In respect of this, it makes no difference whatsoever as to whether the suppressed sales were alleged to be in the cement trading account or in the general trading account. Both these accounts were covered under the head of income from business or profession. WE fail to see how it can be said that the assessee did not have a reasonable opportunity to show cause against the levy of penalty or that the whole basis on which the notices for the levy of penalty were issued was altered by the appellate orders.
12. We may now come to certain cases realised upon by Mr. Dastur. In CIt v. Lakhdhir Lalji p : 85ITR77(Guj) , the ITo added a sun of Rs. 58,000 to the disclosed income which he held the assessee has realised by the sale of 1,383 began of garlic and has concealed, and issued a notice to the assessee under s. 274 of the Income-tax Act, 1961, for levying penalty for concealment of income. As the amount of penalty livable would be more than Rs. 1,000, he referred the case to the IAC. On appeal from the assessment order, the AAC held that 1,383 began of garlic were included in the stock of there assessee and that a sum of Rs. 34,000 should be added on the footing of under valuation of stock and not Rs. 58,000. The IAC took note of the AAC's order and levied a penalty of Rs. 7,400 under s. 271(1)(c) on the ground that the assessee has deliberately furnished inaccurate particulars of his income. On appeal from the IAC's order levying penalty, the Appellate Tribunal held that the order of the IAC was without jurisdiction as his jurisdiction was restricted to those item of concealment of income n regard to which the ITO was satisfied that there was concealment of income. It was held by the (Gujarat) High Court that the penalty proceedings has been commenced against the assessee on a particular footing namely, concealment of particulars of income, but the final conclusion for levying the penalty was based on a different footing altogether, m namely, on the footing of furnishing inaccurate particulars of income., Under the circumstances, it could not be said that the assessee has been given a reasonable opportunity of being heard before the order imposing the penalty was passed. The very basis for the penalty proceedings against the assessee initiated by the ITO disappeared when the AAC held that there was no suppression of income by the assessee. The conclusion reached by the Tribunal that the IAC has no jurisdiction to impose a penalty under. s 271(1) (c) for th concealment of income was correct. In our view, this case is distinguishable from the case before us,. In that case the notice of imposing penalty was used on the footing of concealment of income by suppression of sales, whereas the penalty was levied by the IAC on the footing that there was furnishing of inaccurate particulars of income by the assessee inasmuch as the stock at the closing of the year was under-valued. There was no admission of suppressed sales or of the income derived therefrom s in the case before us. Moreover, in that case, m the assessee was given a notice to meet with the same that he has made certain sales and suppressed them, whereas penalty was levied on the footing that he has under-valued his closing stock, which was a different thing altogether. However, in the present case, notice of penalty has been issued on the ground of suppressed sales and the penalty has been imposed on the same ground, the only difference being that at the time when the penalty notice was issued the suppressed sales were held to be in the cement trading account, whereas the IAC found them to be in the general trading account.
13. Mr. Dastur next relied upon a decision of the Calcutta High Court in CIt v. C. K. Naha & Bros. : 117ITR19(Cal) , where it has been held that is is not the satisfaction of the IAC in the course of penalty proceeding that the assessee has concealed a particular income, m but the satisfaction of the ITO in the course of assessment proceeding that the assessee has concealed a particular income, m which confers jurisdiction on the IAC, to deal with penalty proceedings against an assessee, provided, however, the other two conditions are satisfied. The IAC can decide only the particular charge of concealment if a particular income referred to him by the ITO. The Department must also prove that particular charge of concealment of that amount, and if by the findings of the IAC the assessee is exonerated from that charge, no penalty can be imposed by the IAC, who must also drop the penalty proceedings against the assessee. WE fail to see how this case can be of any assistance in the case before us. In that case penalty proceedings were initiated by the ITO in regard to the sum of Rs,. 10,263 and then referred to the IAC, whereas the AAC imposed penalty on a different use of Rs. 19,647 by making out a new case of concealment of that sum, of Rs. 10,263 was not included in the amount of Rs. 19,647. That case is, therefore, clearly distinguishable on facts.
14. The next case relied upon by Mr. Dastur was CIt v. Manu Engineering Works : 122ITR306(Guj) . In that case in the assessment for the year 1970-71 made on the assessee-firm an addition of Rs. 21,691 was made by the ITO on the ground that the gross profit disclosed by the assessee was not acceptable because against this order. Before the appeal came up for hearing, the assessee discovered that the account has debited the opening stock value amounting got Rs. 25,770 to the profit and loss account twice and thereby there was an under-statement of the profits. This amount of Rs,. 25,770 was surrendered before the AAC buy the assessee for the purpose of taxation. This fact was disclosed to the IAC. He, however, levied penalty, holding 'I am of the opinion that i will have to be said that he assessee has concealed its income or that i has furnished inaccurate particulars of such income. ' The order of levy of penalty was set aside by the Tribunal on the ground that the IAC has proceeded in levying penalty on the ground that the assessee has made double debit as admitted by the assessee before the AAC. This case is again of no assistance to the assessee here, because in that case there was a clear change of ground or basis in the notice of penalty and the order imposing the same.
15. The case of CIT v. Ananda Bazer Patrika P. Ltd. : 116ITR416(Cal) , is against of no assistance, because in that case the penalty proceeding were sought to be proceeded with on the basis of the finding of the AAC who modified the original assessment order and held that a certain sum was not concealed income of the assessee from ' : other sources' as held by the ITO but was concealed business income. In that case, the notice of penalty was on the footing of concealment of income under one head of income, whereas it was found on appeal that the income under a different head of income had been concealed.
16. Similarly, the decision in CIt v. Dwarka Prasad Subhash Chandra : 94ITR154(All) , is also not relevant before us, because all that was held there was that nothing in the stature indicates that the IAC has any jurisdiction to impose penalty in a case where the AAC is satisfied in the course of proceedings before him, that penalty proceedings should be taken., In that case notice to show cause against the levy of penalty was issued by the ITO under s. 271(1)(c) of the Income-tax ACt, 1961, but the penalty was levied by the IAC not on the conclusion of the ITO but on a different conclusion arrived at by the AAC. In the case before us, as we have already pointed out, there is no change of basis of suppression of sales between the order of the ITO and the order of the AAC. Hence, the Principle laid down in this decision has no application to the case before us.
17. WE may mention that Mr. Dastur also cited a decision of the High Court of Punjab and Haryana in Niemla Textile Finishing Mills (P.) Ltd. v., CIT , and the decision of the Allahabad High Court in CIT v. Shadiram Balmukand : 84ITR183(All) . We are, however, not inclined to discuss these two cases s, in our view they are of no relevance to the question before us.
18. In the result, the question referred to us is answered in the affirmative and against the assessee. The assessee to pay to the Commissioner the costs of this reference.