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Khanchand Thakurdas Vs. Commissioner of Income-tax (Central), Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberWrit Petition No. 5943 of 1977
Judge
Reported in[1983]140ITR581(KAR); [1983]140ITR581(Karn)
ActsIncome Tax Act, 1961 - Sections 147, 271, 271(1), 271(4A) and 273A
AppellantKhanchand Thakurdas
RespondentCommissioner of Income-tax (Central), Madras
Appellant AdvocateG. Srangan, Adv.
Respondent AdvocateS.R. Rajashekhara Murthy, Adv.
Excerpt:
.....of income on the ground that certain items had not been returned in the income such as household expenses, salary, income-tax, wealth-tax, charity, gaushala account and a wrong claim of bad debt, resulting in penalty being imposed on the assessee. ' 7. i have placed reliance on the above decision only to highlight the fact that in filing a return the assessee may by inadvertent mistake or oversight have failed to add back certain income as, in the instant case, the portion of the rent assessable as personal to some of the partner of the assessee-firm. therefore there is clearly a misapplication of mind by the respondent-commissioner in dealing with the revision application of the petitioner......under s. 271(1)(a) of the act were completed and a penalty of rs. 18,070 was imposed on the assessee-firm. aggrieved by the same, the petitioner applied for revision of that order under s. 271(4a) of the act, as it was then, resulting in the order now impugned in this writ petition. 3. the respondent-commissioner has rejected the revision application on the ground that the requirement of that sub-section, namely, sub-s. (4a) of s. 271 of the act, as it was then, had not been satisfied by the applicant-petitioner which would enable the commissioner to exercise his discretion to waive or reduce the penalty imposed under s. 271(1)(a) of the act. he came to the conclusion in the following manner which is best demonstrated by extracting that portion of the order which deals with that.....
Judgment:

Chandrakantaraj Urs, J.

1. This petition is directed against the order made by Commissioner of Income-tax (Central), Nungambakkam, Madras, dated January 4, 1977, in exercise of his jurisdiction under s. 271(4A) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), corresponding to the present s. 273A of the Act.

2. The facts that are required to be stated briefly for a just disposal of the case are as follows: The petitioner is a firm carrying on business in hundi banking. It has its business in Trichy, Bombay and Bangalore. Separate books of account are kept in respect of the three centres and the return was filed for the assessment year 1964-65 on August 19, 1969, belatedly. The petitioner was assessed, on the return filed, to a taxable income of Rs. 1,30,100. The total tax payable by the firm was Rs. 10,934. Before the assessment was concluded on June 28, 1967, as is evidenced by the order of assessment, nearly, the whole of the tax due had been paid leaving as balance of a few hundred rupees. However, proceedings under s. 271(1)(a) of the Act were initiated against the assesses-petitioner firm for belated filling of the return for the relevant assessment year. While those preceedings were still pending, the ITO initiated proceeding sunder s. 147(b) of the Act to bring to tax some income which had escaped assessment on the information received by him. The information received was that some of the partners were using part of the business premises of the firm for their residence. When the assessment was first concluded, the entire rent paid for the business premises had been allowed as a deduction. On the information now received, the ITO added back a sum of Rs. 1,200 being part of the rent for the premises as personal and brought the same to tax. The tax liability was, therefore fixed at Rs. 11,107. After this was done, the proceedings under s. 271(1)(a) of the Act were completed and a penalty of Rs. 18,070 was imposed on the assessee-firm. Aggrieved by the same, the petitioner applied for revision of that order under s. 271(4A) of the Act, as it was then, resulting in the order now impugned in this writ petition.

3. The respondent-Commissioner has rejected the revision application on the ground that the requirement of that sub-section, namely, sub-s. (4A) of s. 271 of the Act, as it was then, had not been Satisfied by the applicant-petitioner which would enable the Commissioner to exercise his discretion to waive or reduce the penalty imposed under s. 271(1)(a) of the Act. He came to the conclusion in the following manner which is best demonstrated by extracting that portion of the order which deals with that question

'I, however, find that this is not the case. Subsequent to the completion of the original assessment for the assessment year 1964-65, the Income-tax Officer had to reopen the assessment under section 147 of the Act, as a result of information which came to his possession that part of the premises said to have been used for the assessee business was occupied by the partners for their personal use. This fact had not been disclosed by the assessee when the original return was filed. It is, therefore, clear that the disclosure of the income made by the assessee was not a full disclosure. Further this was a firm formed consequent to the dissolution of another firm, which fact was already within the knowledge of the Income-tax Department and so, the filing of the return was not entirely voluntary.'

4. It is now well settled by several decided cases of this court and other High Court that the jurisdiction under sub-s. (4A) of s. 271 of the Act, as in the present s. 273A of the Act, should be exercised by the Commissioner if the conditions set forth in the section are satisfied, either to waive or to reduce the penalty imposed under s. 271 of the Act. That there was a second assessment under s. 147(b) of the Act resulting in bringing to tax some escaped income is not an event relatable to the explanation for a belated filing of the original return. At best, it could only be concealment of the income falling clearly within the ambit of sub-s (1)(c) of s. 271 of the Act and not under sub-s. (1)(a) of the same section. When no proceedings have been initiated under s. 271(1)(c) of the Act, it is difficult to see how the second assessment under s. 147(b) of the Act is relatable to the explanation offered in regard to the delay in filing he return. Thus, the respondent has not made a proper approach in applying his mind to consider the explanation offered for the late filing of the return at all.

5. The next reason is that it is not a full disclosure. No doubt, the assessee did not disclose the fact of using part of the premises as residence of some of the partners. From that, it cannot necessarily be inferred that the income of the firm was not fully disclosed. All that the ITO on receiving the additional information subsequent to the original assessment order was to add back an allowance and bring that allowance to tax. The total income as disclosed in the original assessment was a full disclosure. Therefore, even here the Commissioner is not correct in coming to the conclusion that no case made out under sub-s (4A) of s. 271 of the Act for the late filling.

6. As held by a Division Bench of the Punjab and Haryana High Court in the case of CIT v. Dev Raj , an inadvertent mistake was not equivalent to gross negligence or willful neglect. The facts of that case were that the assessee was proceeded against under s. 271(1)(c) of the Act for concealment of income on the ground that certain items had not been returned in the income such as household expenses, salary, income-tax, wealth-tax, charity, Gaushala account and a wrong claim of bad debt, resulting in penalty being imposed on the assessee. On appeal, the Tribunal held that the inadvertent mistake was not a gross negligence or wilful neglect, which was affirmed by the High Court of Punjab and Haryana on a reference made at the instance of the Department. While affirming the view of the Tribunal, that court stated as follows (p. 77):

'It may be mentioned at the outset that, on these facts, the Tribunal could take either of the view, namely, that the omission was deliberate and also that it was not, because no explanation of the assessee was called for as to in what circumstance he omitted to add back the amounts which were mentioned in the profits and loss account and were, in fact, added back by the Income-tax Officer. The Inspecting Assistant Commissioner took the view that there was gross negligence and wilful default whereas the Tribunal has taken quite a contrary view. As a matter of fact, about the two additonal, namely, wealth-tax and income-tax, even the counsel present in court were ignorant that they are to permissible deductions. If this is the case with the legal profession, how can one expect a different standard from a laymen; more particularly, when the assessee can only read and write Urdu. In this view of the matter, no fault can be found with the decision of the Tribunal.'

7. I have placed reliance on the above decision only to highlight the fact that in filing a return the assessee may by inadvertent mistake or oversight have failed to add back certain income as, in the instant case, the portion of the rent assessable as personal to some of the partner of the assessee-firm. That in itself will not be either willful negligence or concealment with knowledge. I have already held that held seven is not relatable to the question of delay in filing the return. Therefore there is clearly a misapplication of mind by the respondent-commissioner in dealing with the revision application of the petitioner. Therefore, it is liable to be set aside and it is so set aside.

8. The matter is remitted to the Commissioner to make a fresh order in accordance with law and in the light of the observations made in the course of this order.

9. There will be no order as to costs.


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