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Commissioner of Income-tax Vs. Bombay Automobiles - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 221 of 1976
Judge
Reported in(1980)16CTR(AP)253; [1980]123ITR582(AP)
ActsIncome Tax Act, 1961 - Sections 271(1)
AppellantCommissioner of Income-tax
RespondentBombay Automobiles
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateY.V. Anjaneyulu, Adv.
Excerpt:
.....penalty - appeal before high court - appellant contended that assessee agreed for levy of minimum penalty - mere acceptance of assessee for addition with regard to source of any disputed item in order to purchase peace in assessment proceedings would not justify revenue to impose penalty under section 271 (1) (c) - no sufficient material to satisfy ingredients of penal provision - held, penalty rightly cancelled by tribunal. - - 6. it is now well settled that mere acceptance of the assessee to make an addition of any item to the returned income in the assessment proceedings or any false explanation with regard to the source of any disputed item which is ultimately added in the assessment proceedings as income or the concession of the assessee to purchase peace in the..........can be allowed for more than two years, that is, rs. 25,000, for each assessment year and that the minimum penalties under section 271(1)(c) leviable under the law would be imposed for each of the years, and settlement will be effected if the aforesaid terms are acceptable to it. in the copy of the letter addressed to the income-tax practitioner of the assesses, it is mentioned by way of reply :'i have no objection to the proposal.(sd.) harbans singh.'3. the final assessments were completed on february 11, 1970, as stated earlier. the iac, to whom the matter was referred by the ito under section 274(2), imposed penalties of rs. 25,000 for each of the assessment years under section 271(1)(c), claiming the same to be the minimum imposable under law, by his order dated january 22, 1972. the.....
Judgment:

C. Kondaiah, C.J.

1. Pursuant to the direction given by this court in I.T. Case No. 165 of 1975 dated April 2, 1976, the Income-tax Appellate Tribunal, Hyderabad Bench, has submitted a statement of the case for the opinion of this court on the following question of law :

'Whether, on the facts and in the circumstances of the case, the order of the Tribunal cancelling the penalties of Rs. 25,000 each for the assessment years 1962-63 and 1963-64 levied by the Inspecting Assistant Commissioner under Section 271(1)(c) is sound in law ?'

2. We may notice the material facts which gave rise to this question. The respondent-assessee is a registered firm. For the assessment years 1962-63 and 1963-64, corresponding to the accounting years ending with March 31, 1962, and March 31, 1963, respectively, assessments of the assessee-firm were completed under Section 143(3) read with Section 147 of the I.T. Act, 1961, on February 11, 1970. The assessee could not satisfactorily explain cash credits and finally offered for assessment sums of Rs. 25,000 each representing peak credits on hundies. The ITO added the same, as the assessee's income from undisclosed sources for each of the two assessment years. The assessee filed an application to the Commissioner on May 2, 1969, under Section 271(4A) which corresponds to the present Section 273A to the effect that he is unable to satisfactorily account for the peak credits of Rs. 25,000 for each of the two assessment years and, therefore, requested him to treat the same as undisclosed income by spreading it over the previous four years to lessen the burden and also requested him to take a lenient view of the matter and waive the penalty proceedings under Section 271(1)(c). The ITO by his letter dated February 5, 1970, informed the assessee that there was no case for settlement under Section 271(4A) and waiver of penalty under Section 271(1)(c), nor the spreading over of concealed income representingthe impugned hundi credits in the account books can be allowed for more than two years, that is, Rs. 25,000, for each assessment year and that the minimum penalties under Section 271(1)(c) leviable under the law would be imposed for each of the years, and settlement will be effected if the aforesaid terms are acceptable to it. In the copy of the letter addressed to the income-tax practitioner of the assesses, it is mentioned by way of reply :

'I have no objection to the proposal.

(Sd.) Harbans Singh.'

3. The final assessments were completed on February 11, 1970, as stated earlier. The IAC, to whom the matter was referred by the ITO under Section 274(2), imposed penalties of Rs. 25,000 for each of the assessment years under Section 271(1)(c), claiming the same to be the minimum imposable under law, by his order dated January 22, 1972. The IAC had based his penalty order on the acceptance of the assessee in respect of the addition of Rs. 25,000 as income from undisclosed sources. To the protest of the assessee's representative that the penalty sought to be levied was very heavy, it was mentioned that it was the minimum penalty leviable under law. Aggrieved by the levy of penalties by the IAC, the assessee preferred appeals to the Income-tax Appellate Tribunal. It filed an affidavit in support of its stand that cash credits representing the hundi loans were proved by the assessee by the production of the original discharged hundi khokas and later the addresses of the concerned creditors had been furnished to the department, but they were not examined by the department although summons were issued to those creditors by the ITO, as the assessee purchased peace with the department by offering the peak credits of Rs. 25,000 each for the assessment years under consideration. The proposal for agreeing to the minimum penalties was on the bona fide impression that the minimum penalties leviable would be Rs. 340 and Rs. 400, respectively, for the assessment years in question, and the assessee did not know that penalties would be either as in the case of an unregistered firm or at the rate of 100% of the credits. The assessee would not have agreed to the minimum penalties but for such an erroneous impression and, therefore, the consent was not valid nor was it out of free will and volition. On a consideration of the entire material, the Tribunal held thus :

'In the Income-tax Officer's proposal it has been cryptically mentioned that the minimum penalties leviable under the law would be imposed. If the assessee had known that 100% of the peak credits added would be imposed as penalties, the consent for the proposal would not have been given. Inasmuch as there has been bona fide misunderstanding of the legal position regarding levy of penalties which has undergone amendments subsequently, we are of the opinion that the very consent given for the proposal in the proceedings under Section 271(4A) cannot be said to be genuineand valid so as to subject the assessee to the imposition of the minimum penalties.'

4. The Tribunal further found that a plain reading of the orders of penalty passed by the IAC indicates that they do not at all refer to or establish the ingredients of the offence with which the assessee is charged, namely, concealment of income. Relying upon the decision of the Supreme Court in CIT v. Anwar Ali : [1970]76ITR696(SC) , it was held that the case of the assessee is one of agreed addition of Rs. 25,000 for each of the assessment years in respect of unproved deposits and no culpable or wilful negligence on the part of the assessee was involved and, therefore, no penalties under Section 271(1)(c) of the Act are justified. In the result, the penalties levied by the IAC were cancelled holding that there was no justification for levy of penalties for both the assessment years in question. Hence, this reference.

5. The submission of Mr. P. Rama Rao, learned counsel for the revenue, is that the assessee has agreed for the levy of minimum penalty and it is not open for it to contend that this is not a case for the levy of penalty under Section 271(1)(c) and that the view taken by the Tribunal is erroneous in law. This claim of the revenue is opposed by Mr. Y.V. Anjaneyulu, counsel for the assessee, contending, inter alia, that there was no true and valid consent for levy of minimum penalty, and it was accepted by the assessee on a bona fide wrong impression of the legal position and the explanation offered by the assessee has been rightly accepted by the Tribunal and that finding is really binding on this court.

6. It is now well settled that mere acceptance of the assessee to make an addition of any item to the returned income in the assessment proceedings or any false explanation with regard to the source of any disputed item which is ultimately added in the assessment proceedings as income or the concession of the assessee to purchase peace in the assessment proceedings would not justify the ITO.to levy a penalty under Section 271(1)(c) unless there is sufficient material to satisfy the ingredients of that penal provision. True, as contended by the standing counsel for the department, the assessee, under some circumstance, agreed to have levy of minimum penalty in this case. He was under the bona fide impression that the penalty would be about Rs. 340 and Rs. 400, respectively, for the two assessment years, which turned out to be not correct. The minimum penalty imposable appears to be 100%, that is, Rs. 25,000, at that time on account of the amendment of Section 271(1), which came into force on April 1, 1968. The assessee's explanation has been accepted by the Tribunal. The finding of the Tribunal that the very consent given for the proposal in proceedings under Section 271(4A) cannot be said to be genuine and valid so as to subject the assessee to theimposition of minimum penalties is one of fact which is binding on this reference court. We are unable to agree with the counsel for the revenue that there is no material in support of the aforesaid finding of fact. In this view, we must hold that the view taken by the Tribunal is correct in law and it is not illegal or erroneous. For all the reasons stated, our answer to the question is in the affirmative and in favour of the assessee and against the revenue. There shall be no order as to costs.


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