1. At the instance of the assessee, the Income-tax Appellate Tribunal, Madras Bench 'A', has referred the following question of law :
'Whether, on the facts and in the circumstances of the case, the penalty of Rs. 75,000 levied under section 28(1) (c) is valid and justified in law ?'
The facts leading up to the reference may be briefly stated :
The assessee is a firm, dealing in kapas (unginned cotton), among other things, with its head office at Davangere and a branch at Hubli. It purchases kapas and, after ginning, sells as lint. During the previous year relevant for the assessment year 1956-57, considerable disparity was noticed in the results disclosed in respect of trading in kapas and cotton at Davangere and Hubli. On a closer examination of accounts, the Income-tax Officer found that on the last day of the accounting year, ending on November 14, 1955, a sum of Rs. 4,87,973 had been credited to the account of one Sharanappa, the kapas account. This amount was claimed to be the cost of 18,217 maunds of Jayadhar and Lakshmi varieties of cotton purchased by the assessee. In support of such a claim a manuscript bill signed by the said Sharanappa was produced. As that bill disclosed only a sum of Rs. 4,55,441, the assessee, on being called upon to explain the discrepancy, stated that the details could be got from the said Sharanappa. Later, Sharanappa produced another bill for Rs. 4,87,937, showing the cost of 18,270 maunds of cotton at Rs. 750 per candy. Since the details were not available, the assessee, who was called upon the furnish them, pleaded its inability to do so. Among other things, it was stated by the assessee that, in the absence of the clerk who wrote the accounts, it would not be possible to furnish as explanation regarding the sale proceeds of the cotton seeds that might have been realised by the ginning of kapas so purchased. It was also mentioned that the sale proceeds of cotton seeds might have been accounted for in the subsequent years.
2. In the course of the above assessment proceedings, the Income-tax Officer found that there was clear evidence of inflation of the purchase account by virtue of the omission to account for the cotton seeds, either original figure in the books had been erased and the figure of Rs. 4,87,973 substituted its place. For all these reasons the Income-tax Officer added a sum of Rs. 1,00,000 (one lakh) towards the cost of cotton seeds and excessive ginning charges.
3. In regard to another account known as 'gunnies account' a sum of Rs. 41,571 was debited to the accounts of wages, paddy, cotton seeds, groundnut cake and coriander. Since no details as to how these respective sums shown against those heads were arrived at, the assessee was asked to furnish the particulars of the gunnies used for each of those commodities, and the details regarding the wages of Rs. 14,000. Since the assessee did not choose to comply, a further sum of Rs. 16,000 was added to the income as inflation expenses.
4. The first appeal by the assessee was dismissed. On further appeal to the Tribunal, a contention was urged that for the assessment year 1958-59, cotton seeds to the extent of 17,020 maunds had been shown in excess and that had come out of the stock in the year under consideration. As the assessee admitted that no closing stock cotton seeds had been shown in the year under consideration, the Tribunal retained an addition of Rs. 70,000, on account of the cotton and kapas and confirmed the addition of Rs. 16,000 in regard to the gunnies account. The assessee was accordingly assessed to tax.
5. In view of the additions made as above, penalty proceedings were instituted under section 28(1) (c) of the Income-tax Act of 1922. In response to the notice issued under section 28(3), the assessee stated that it had not concealed any income from the books of account, not had it furnished any inaccurate particulars thereof, and that all sales and purchases have been correctly recorded in the books of account and there was no intention to evade tax at all. A further opportunity afforded by the Income-tax Officer was not availed of by the assessee. The Income-tax Officer came to the conclusion that, on the facts of the case, it had been proved beyond doubt that the assessee had concealed the particulars of its income warranting the imposition of penalty under section 28(1) (c) of the Income-tax Act. He, however, imposed a penalty of Rs. 1,00,000 as against a maximum penalty of Rs. 1,54,153 that was imposable under the provisions of that section.
6. On appeal to the Appellate Assistant Commissioner, he was of the view that the assessee had been changing its front and that all along its attitude was that, owing to the demise of the partner concerned and the clerk, it was not possible to ascertain the correct facts in respect of the sum of Rs. 4,87,973 relating to the cotton and kapas account, and, in these circumstances, a sympathetic view might be taken. The fresh explanation offered by the assessee was also consideration and rejected. It was pointed out by him that the sale proceeds of cotton seeds to the extent of Rs. 33,344 should have gone to reduce the cost of kapas instead of being shown as credited to Sharanappa, as it was not shown that he ever purchased cotton seeds. He therefore, confirmed the order levying penalty, but reduced the penalty to Rs. 75,000, taking into consideration the reduction given by the Tribunal in the quantum appeal in respect of the addition to the cotton and kapas account. In the further appeal to the Tribunal, this order stood confirmed. Hence the reference.
7. Sri V. S. Natarajan, the learned counsel appearing on behalf of the assessee, contended as follows : There has been no deliberate or conscious concealment of the income by the assessee, both as regard the sum of Rs. 70,000 in respect of the kapas account and Rs. 16,000 relating to 'gunnies account.' In regard to the addition of a sum of Rs. 16,000 relating to has been done by the Income-tax Officer is to merely reject an explanation offered by the assessee, while all along the amount had been shown in the accounts. In such an event, it would not amount to concealment within the meaning of section 28(1) (c) of the Income-tax Act. The trend of this argument of his is that, once this fact is established, the entire levy of penalty must all to the ground thus calling for a redetermination of the penalty by excluding the sum of Rs. 16,000 from consideration. The reason, according the amounts held to have been concealed and as such if one of them falls for any reason the entire levy of penalty requires to be recomputed. On the other question of concealment of the sum of Rs. 70,000 in regard to the value of cotton seeds, he submits that the concealment, even if true, is not conscious of deliberate, having regard to all the facts and surrounding circumstances of the case. We are of the opinion that there is no force in any of the above contentions of the learned counsel for the assessee.
8. It is clear from the several attempts of a prevaricating nature made by the assessee to explain away the discrepancy in regard to the entry of Rs. 4,87,973, which could only have been explained by either accounting for the value of closing stock of cotton seeds or the sale price thereof, that the assessee has failed to account for the cotton seeds deliberately. If the cotton seeds had been accounted for in any of the two ways mentioned, the value of it should have gone towards the reduction of the purchase price of kapas. Hence, it is clear from omission that the assessee stood to gain in two ways, inasmuch as his income stood reduced to the extent of the inflated purchase price shown in the books of account and the price realised by the sale of such cotton seeds. In these circumstances, it is reasonable to presume that the assessee was fully, therefore, that the concealment of income in respect of the cotton seeds was deliberate on the part of the assessee. Moreover, this being a question of fact, the assessment is concluded by the finding of the Tribunal in regard to such a question.
9. The other argument of the learned counsel relating to the concealment of Rs. 16,000 is, as understand it, primarily based on the assumption that, under section 28(1) (c) of the Act, the extent of concealment of income would be a relevant factor to taken into account in the determination of the quantum of penalty. In our judgment, there is no basis for such an assumption. We are also of the view that, even on the assumption that there has been no concealment in regard to the sum of Rs. 16,000, the penalty levied will have to be sustained as it is not disputed that the levy of Rs. 75,000 is well within the maximum provided for under section 28(1) (c) of the Act.
10. In this connection, Sri Rajasekhara Murthy, the learned counsel appearing on behalf of the revenue, invited attention to the case of the Supreme Court in Mansukhlal and Brothers v. Commissioner of Income-tax, and submitted that the question would have to be answered against the assessee, and no question of recomputation of penalty would arise. Since we are in agreement with this submission of the revenue, we do not consider it necessary to examine the contention that there has been in fact no concealment in respect of the sum of Rs. 16,000 as urged on behalf of the assessee.
11. In Mansukhlal case, the facts were as follows : The assessee therein returned an income of Rs. 45,904 for the assessment year 1948-49. The Income-tax Officer added two items of Rs. 24,000 and Rs. 90,000 as profits and income from undisclosed sources, which had been concealed by the assessee. A penalty of Rs. 62,000 was imposed within the maximum limits provided by section 28(1) (c) of the Act. On appeal, the Appellate Assistant Commissioner held that only a sum of Rs. 24,000 could be treated as concealed income and Rs. 90,000 could not be treated as such for the purpose of levy of penalty under section 28(1) (c). He, therefore, reduced the penalty to Rs. 20,000. In appeal, the Appellate Tribunal agreed with the Appellate Assistant Commissioner with regard to the actual sum involved in the concealment and affirmed the decision as regards the sum of Rs. 90,000. But, as regards the quantum of penalty, it was held that, as there had been concealment of profit, it was wholly immaterial whether one item or more than one item had been concealed and the quantum had to be computed under section 28(1) (c) not on the basis of tax on the to have been concealed but on the difference between the tax the assessee's income as finally assessed and the tax which would have been avoided if the return filed by him had been accepted as correct. Consequently, the Tribunal restored the order of the Income-tax Officer imposing a penalty of Rs. 62,000. On a reference to the High Court of Bombay, it was of the view that there was no legislative intent disclosed in the provision of section 28(1) (c) which would link the avoidance of tax to the concealment of income or which would justify holding that the maximum penalty prescribed in the section had to be proportionate to the extent of the concealment. In appeal, the Supreme Court, held that the answer returned by the High Court to the question referred was correct. The relevant passage is at page 554 of the above cited report and runs thus :
'In the above view of the matter, it must be held that the penalties which have been provided by section 28(1) are meant for the acts of omission or commission which are set out therein and once an assessee is proved to have been guilty of them the penal provisions are attracted and with reference to clause (c) irrespective of the amount concealed. Thus the answer returned by the High Court to the question referred was correct.'
12. In the light of the above enunciation, we are unable to accept any of the contentions advanced on behalf of the assessee.
13. For the light of the above enunciation, we are unable to accept any of affirmative and against the assessee. It is answered accordingly. Having regard to all the circumstances, we make no order as to costs.
14. Question answered in the affirmative.