The judgment of the court was delivered by -
KRISHNA RAO J. - The respondent, who will hereinafter be mentioned as the assessee, is a registered firm at Vijayawada consisting of five partners. The assessment year is 1945-46 for which the accounting year is the Deepavali year ending on October 16, 1944. The assessee worked a groundnut mill on lease and carried on the business of manufacture and sale of groundnut oil and forward transactions in groundnuts and groundnut oil. It claimed to have paid losses amounting to Rs. 65,805 in forward transactions and returned an income of Rs. 39,764, after deducting the net loss. The Income-tax Officer found that the alleged payment of losses to the extent of Rs. 57,739 was not proved and that the losses were fictitious. He gave affect to this finding in his assessment orders dated January 31, 1948, and also initiated proceedings to levy penalty under section 28(1) (c) of the Income-tax Act (XI of 1922) and section 16 of the Excess Profits Tax Act (XII do 1940). On the appeals preferred by the assessee against the assessment orders, the Appellate Assistant Commissioner held in his order dated May 11, 1951, that' the disallowance of the losses amounting to Rs. 57,739 was proper and justified.' On the assessees further appeals, the Appellate Tribunal also held in its order dated September 22, 1952.' We are not satisfied that the losses were paid as claimed by the assessee. Their disallowance by the department is correct'. It appears from the Tribunals order that the learned counsel for the assessee did not go into the individual cases of payments made of the losses but argued the case as a whole. The Tribunal, however, went into the evidence relating to various payments and reached the conclusion that the view taken by the department was right. The result of the Tribunals conclusion was that the impugned losses could not be taken into account for determining the profits and gains of the business under section 10(1) of the Income-tax Act.
In the proceedings taken for the levy of the penalty, the assessee maintained that neither the losses nor the payments thereof were fictitious. But it did not adduce any further evidence. By his orders dated January 16, 1959, the Income-tax Officer held that the assessee had 'deliberately concealed the particulars of his income by claiming fictitious payments of speculation losses'. He imposed penalties of Rs. 10,000 under section 28(1) (c) of the Income-tax act, and of Rs. 20,000 under section 16 of the Excess Profits Tax Act. The appeals preferred by the assessee were dismissed by the Appellate Assistant Commissioner. On the assessees further appeals to the Tribunal under section 33 of the Income-tax Act and section 19(2) of the Excess profits Tax Act, a preliminary objection was taken by the department that as the findings in the assessment proceedings had become final, they were not open for reconsideration in the penalty proceedings. The Tribunal overruled this preliminary objection on the ground that the relevant considerations were different in penalty proceedings and that in view of the materials on record, the findings in the assessment proceedings were not binding on it. It considered the evidence afresh, came to the conclusion that the evidence was not sufficient to prove that the assessee was a guilty of deliberate concealment of income and allowed both the appeals. The Commissioner of Income-tax applied under section 66(1) for a reference. The Tribunal held that the question of concealment of income or of deliberately furnishing inaccurate particulars of income were questions of fact on which its finding based on appreciation of the evidence were final and that the only question of law which arose was :
'Whether, in the absence of any fresh evidence, the finding given in the assessment proceedings under the relevant Income-tax Act and the Excess Profits Tax Act is conclusive in the matter of levy of penalty under section 28(1) (c) of the Income-tax act and the corresponding section 16(1) of the Excess Profits Tax Act respectively ?'
It referred this question alone to us.
Although the question is worded so as to cover all income-tax authorities concerned, it arises in this case only in regard to the Appellate Tribunal, because both the Income-tax Officer and the Appellate Assistant Commissioner did not depart in the penalty proceedings from the conclusions reached in the assessment proceedings.
It is well settled that the principle of res judicata or estoppel by record, which applies to decisions of civil courts, has no application to decisions of income-tax authorities so as to preclude the determination of a question in a previous assessment order from being reopened in proceedings relating to a subsequent assessment year : New Jehangir Vakil Mills Co. Ltd. v. Commissioner of Income-tax and Income-tax Officer v. Murlidhar Bhagwan Das. The reasons are, firstly, that the Income-tax authorities including the Appellate Tribunal are not courts; and, secondly, that the purpose and the subject-matter of the proceedings in a subsequent year are not the same as those in the previous year. In Seshadri v. Second Addl. Income-tax Officer, a Division Bench of Madras High Court held, after reviewing the authorities and considering section 37 and other provisions of the Income-tax act, that the Appellate Tribunal is not a court. This view referred to with approval by a Division Bench of this court in Satyanarayanamurthi v. Income-tax Appellate Tribunal. In New Jehangir Vakil Mills Co. Ltd. v. Commissioner of Income-tax, their Lordships applied the principle that, in matters of recurring annual tax, a decision on appeal with regard to one years assessment did not deal with eadem questio as that which arises in respect of an assessment for another year and held that the question whether the assessee was an investor or was a trader in shares, although decided in favour of the assessee in 1943, could be reopened and decided in favour of the department in the assessment proceedings of 1944. In Income-tax Officer v. Murlidhar Bhagwan Das, their Lordships pointed out that the year was the unit of assessment and the decision of an Income-tax Officer in a particular year did not operate as res judicata in the matter of assessment of a subsequent year. Although the principle of res judicata does apply, it has been held in decisions binding on us that, on the principles of natural justice or judicial dealing, Income-tax Officers cannot arbitrarily go behind the findings reached in earlier assessment years. In Sankaralinga Nadar v. Commissioner of Income-tax, a full Bench of the Madras High Court said :
'It seems to us that where income-tax officials have, after enquiry, proceeded to assess the assessee on a certain basis, though they maybe entitled to reopen the enquiry, they cannot arbitrarily change the assessment simply on the ground that the succeeding officer does not agree with the preceding officers finding. The position is just like the position of any two parties who have proceeded on a certain basis in their relations. It may be open to one party to reopen the matter. But if he wants to do so, there should be facts which would entitle him to do it. If fresh facts come to light which on an investigation would entitle the Income-tax Officer to come to a different conclusion from that of his predecessor, we think he is entitled to reopen the question. But if there are no fresh facts, it is difficult to see how he can arbitrarily go behind the finding of his predecssor. The same principles of natural justice or judicial dealing, which courts impose upon Income-tax Officers, would prevent them capriciously setting aside the orders of their predecessors based on enquiry.'
The learned judges referred to Viscount Haldanes observations in Local Government Board v. Arlidge that administrative tribunals must act judicially and must come to a decision in the spirit and with the sense of responsibility of a tribunal whose duty it is to mete out justice.
In Trustees, Nagore Durgah v. Commissioner of Income-tax, Satyanarayana Rao and Rajagopalan JJ. Said :
'The principles of natural justice require that if there is prior determination by the income-tax department, ordinarily there should be no variation from that decision unless there are fresh circumstances to warrant a deviation from the previous decision.'
The entire case-law was reviewed by Chagla C.J. in H. A. Shah & Co. v. Commissioner of Income-tax. The Division Bench of the Bombay High Court affirmed the view that, although the principle of res judicata may not apply, the Appellate Tribunal should be extremely slow to depart from a finding given by it earlier. They also held that the fresh facts and circumstances necessary to justify a deviation may be materials already on record which the Tribunal failed earlier to take into consideration.
The contention of Sri. C. Kondaiah, the learned counsel for the department is that the aforesaid view of the law has no application here because the assessment proceedings and the penalty proceedings relate to the same assessment year. But the subject-matter and the purpose of the assessment proceedings under section 23 of the Income-tax act is to assess the total income of the assessee and determine the tax payable to him. The Purpose of proceedings under section 28 is different and when action is taken under section 28(1) (c), the question for determination is whether the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. Generally speaking, there is no eadem questio in the two proceedings, although it might happen in a given case that the question for determination in the penalty proceeding was actually decided in the assessment proceeding. Sri Kondaiah has urged that a penalty proceeding is merely a proceeding to levy additional tax for the same year. He has referred to the observation of their Lordships of the Supreme Court in C. A. Abraham v. Income-tax Officer :
'By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee.'
But the provisions relating to appeals in the Income-tax Act treat the orders under section 23 as distinct from those under section 28. Under section 33(4) of the Income-tax Act, the Appellate Tribunal after giving both parties to the appeal an opportunity of being heard, is empowered to pass such orders thereon as it thinks fit. The amplitude of the powers so conferred may, in our opinion, be restricted on principles of natural justice and propriety to the same extent as in cases of assessment proceedings relating to different years. The position is similar under the Excess Profits Tax Act. An Appellate Tribunal would be justified in coming to a conclusion in penalty proceedings different from that in assessment proceedings of the same year fresh acts and circumstances are brought to light.
Sri C. Kondaiah has strongly relied on decisions which have held that findings in assessment proceedings are cogent evidence and prima facie proof in penalty proceedings, as for instance P. K. Kalasami Nadar v. Commissioner of Income-tax. But it is one thing to say that the finding is prima facie proof and quite another thing to say that it is conclusive. He has not been able to cite any authority for the position that earlier findings relating to the same assessment year would be conclusive. In R. C. No. 18 of 1960, decided on December 8, 1961, a Division Bench of this court, while repelling the contention that an independent enquiry is necessary in the penalty proceedings before a levy could be justified, observed :
'In the circumstances, there is no justification for the contention that the previous proceedings cannot form the basis for the penalty proceedings.'
We do not consider that by this observation the learned judges intended to lay down that the determination of matters in previous proceedings is conclusive in penalty proceedings. Under section 28(3) of the Income-tax Act, the assessee has to be heard or given a reasonable opportunity of being heard, before an order directing a payment of penalty is made. If the conclusions reached in earlier proceedings cannot be reopened, this statutory mandate for hearing would have little content. Section 28(3) does not confine the hearing to only further evidence that may be adduced. It follows that the assessee may object to the levy of penalty not only by adducing further evidence but also by referring to materials already on record.
Sri M. J. Swamy, the learned counsel for the assessee, has cited a number of decisions wherein it was held that proceedings to levy penalty are of a penal nature and that the onus of proof is upon the department to establish that an offence was committed by the assessee. We do not consider it necessary to refer to these decisions in detail, because the question is not one of onus of proof but one of the effect of the earlier findings.
The question itself, as framed by the Tribunal, implies that, if there is fresh evidence, the finding is not conclusive. The point of the question is whether the earlier finding in the assessment proceedings can be reopened by the assessee only by adducing fresh evidence. We have already indicated that the terms of section 28(3) of the Income-tax Act do not support such a view. If the same issue has been actually decided earlier by the Tribunal in the assessment proceedings the Tribunal should be slow to depart from it in the penalty proceedings, unless fresh facts and circumstances are brought to light either by the material already on record or by additional evidence. The question referred to us in answered accordingly. The parties will bear their own costs. Advocatess fee Rs. 300.
Question answered accordingly.