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Addl. Commissioner of Income-tax Vs. Jiwan Lal Shah - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 488 of 1973
Judge
Reported in[1977]109ITR474(All)
ActsIncome Tax Act, 1961 - Sections 147, 148, 271 and 271(1); Finance Act, 1968
AppellantAddl. Commissioner of Income-tax
RespondentJiwan Lal Shah
Appellant AdvocateDeokinandan, Adv.
Respondent AdvocateAshok Gupta, Adv.
Excerpt:
.....concerned started proceedings under section 147 of the income-tax act, 1961, for the aforesaid assessment years as he had discovered certain bank deposits in the joint names of the assessee and his wife as well as in the names of the sons and the minor daughters of the assessee. before answering these questions it will be convenient to notice the relevant legislative amendment introduced in section 271(1)(c). when the income-tax act, 1961, came into force section 271(1)(c) stood as under :271. failure to furnish returns, comply with notices, concealment of income, etc. --(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. it would be perfectly legitimate to saythat the mere fact that the..........basis. the following chart gives the necessary details of the returned incomes and the assessed incomes :assessment yearreturned incomeassessed incomers.rs.1962-632,1654,2041963-642,5004,2041965-661,6674,5041966-671,5004,9041967-682,5005,0044. subsequently, the income-tax officer concerned started proceedings under section 147 of the income-tax act, 1961, for the aforesaid assessment years as he had discovered certain bank deposits in the joint names of the assessee and his wife as well as in the names of the sons and the minor daughters of the assessee. the details of such deposits and interest accrued thereon are as follows :assessment yearamounts of depositsinterest amountrs.rs.1962-6316,0001151963-6410,5004871965-6621,9009751966-6713,2701,7351967-683,0002,7085. in the returns.....
Judgment:

Mehrotra, J.

1. In this reference the following questions of law have been referred to this court for its opinion :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of Section 271(1) as they stood prior to the amendment by the Finance Act of 1968 should be applied in the present case ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the provisions of Section 271(1)(c) read with the Explanation thereof will not apply to the assessment years 1962-63 and 1963-64 even though the returns of income had been filed, after April 1, 1964 ?

3. Whether, on the facts and circumstances of the case, the Tribunal was right is holding that no penalty could be imposed with reference to the cash deposits on the principle of Anwar Ali's case : [1970]76ITR696(SC) even after the amendment of Section 271 in 1964 ?

4. Whether, on the facts and the circumstances of the ease, the Tribunal was justified in holding that the Inspecting Assistant Commissioner had no jurisdiction to impose penalties under Section 271(1)(c) for the assessment years 1962-63, 1963-64, 1965-66, 1966-67 and 1967-68 and in setting aside his orders ?'

2. Five assessment years are involved in the references, namely, 1962-63, 1963-64, 1965-66, 1966-67 and 1967-68. The questions referred to us are, however, common.

3. The assessee, Jiwan Lal Shah, was assessed as an individual in the aforesaid assessment years. He filed his returns for the said years but the returned incomes were not accepted and he was assessed on the estimated basis. The following chart gives the necessary details of the returned incomes and the assessed incomes :

Assessment year

Returned income

Assessed income

Rs.

Rs.

1962-63

2,165

4,204

1963-64

2,500

4,204

1965-66

1,667

4,504

1966-67

1,500

4,904

1967-68

2,500

5,004

4. Subsequently, the Income-tax Officer concerned started proceedings under Section 147 of the Income-tax Act, 1961, for the aforesaid assessment years as he had discovered certain bank deposits in the joint names of the assessee and his wife as well as in the names of the sons and the minor daughters of the assessee. The details of such deposits and interest accrued thereon are as follows :

Assessment year

Amounts of deposits

Interest amount

Rs.

Rs.

1962-63

16,000

115

1963-64

10,500

487

1965-66

21,900

975

1966-67

13,270

1,735

1967-68

3,000

2,708

5. In the returns filed in response to the notices under Section 148 the assessee included the interest income from the aforesaid deposits. However, the amounts of deposits were not returned as income in the revised returns. The assessee maintained that the deposits in question were not his income but arose from four different sources. Some of the deposits were admitted to be correlated to certain withdrawals from banks. Some deposits were said to represent the sale proceeds of the ornaments of the assessee's wife. Some of the deposits were said to have been made out of the savings of the assessee's brother, Hira Lal Shah. The rest were explained as having come out of the assessee's savings from his past earnings. TheIncome-tax Officer rejected the explanation of the assessee and the saiddeposits were added back as income for the relevant years. The interest, ofcourse, had been returned as income by the assessee himself. On appeal, theAppellate Assistant Commissioner accepted some of the deposits and sustainedadditions in part. The Tribunal in the second appeal gave further relief tothe assessee. The following table gives the details of the results whichensued from the appeals to the Appellate Assistant Commissioner and theTribunal.

Assessment year

Additions made by I.T.O.

Additions by A.A.C.

Sustained by the Tribunal

Rs.

Rs.

Rs.

1962-63

16,000

13,000

11,000

1963-64

10,500

7,000

3,000

1965-66

21,900

9,403

1,403

1966-67

13,280

13,270

9,763

1967-68

3,000

3,000

1,500

6. While completing the reassessment the Income-tax Officer also initiated proceedings under Section 271(1)(c) and referred the matter to the Inspecting Assistant Commissioner as the minimum penalty imposable was held by the Income-tax Officer to exceed Rs. 1,000 in each assessment year. The Inspecting Assistant Commissioner held that the assessee had suppressed his income at the time of the original assessment--(i) in respect of items of credits found to be his income for the various years and (ii) certainly to the extent of the interest that had accrued on these various deposits. He further held that the returns of income in pursuance of the notices under Section 148 having been filed after April 1, 1968, the provisions of Sub-section (1) of Section 271 as amended on April 1, 1968, should be applied. He, therefore, imposed penalties equal to the amount of income concealed. He ignored the item of interest which had been shown in the returns under Section 148 and restricted the penalty amount to the amounts of deposits treated by the Income-tax Officer as the incomes of the various years. The penalties imposed by him were as follows :

Assessment year

Amount of penalty

Rs.

1962-63

16,000

1963-64

10,500

1 965-66

21,900

1966-67

13,270

1967-68

3,000

7. It may be stated that the Inspecting Assistant Commissioner passed his orders in June, 1970, before the Appellate Assistant Commissioner disposedof the appeals preferred by the assessee against the reassessments. As has been stated above, the Appellate Assistant Commissioner and, thereafter, the Tribunal granted relief to the assessee against the Income-tax Officer's orders passed in the reassessment proceedings. Therefore, it is not disputed that the penalties imposed by the Inspecting Assistant Commissioner in various assessment years were, in any case, bound to be reduced in view of the appellate orders passed by the Appellate Assistant Commissioner and, thereafter, by the Tribunal.

8. The assessee preferred appeals to the Tribunal from the orders of the Inspecting Assistant Commissioner. The Tribunal held as follows :

(1) The amendment of 1968 would be effective only from the assessment years 1968-69 onwards. Therefore, it did not apply to the assessment years in dispute.

(2) In the alternative, it was held that even if the first conclusion of the Tribunal was wrong and the relevant date was the date of the filing of returns, even then the amendment of 1968 would not be applicable on the ground that the concealment was only in the original returns which were admittedly filed before April 1, 1968. The Tribunal held that so far as the revised returns were concerned (which were admittedly filed after April 1, 1968) there was no concealment as the assessee had returned the interest income on the deposits and so far as the non-inclusion of the bank deposits in the revised returns was concerned, it was held that in view of the pronouncement of the Supreme Court in Commissioner of Income-tax v. Anwar Ali : [1970]76ITR696(SC) the mere fact that the explanation offered by the assessee in respect of the sources of the bank deposits had not been accepted, was not sufficient to lead to the conclusion that there was concealment of income by the assessee so as to attract the provisions of Section 271(1)(c).

(3) The amendment made to Section 271 by the Finance Act of 1964 would be operative only in respect of the assessment year 1964-65 and onwards. However, it was held that even after the addition of the Explanation to Section 271 by the Finance Act of 1964 the law laid down by the Supreme Court in Anwar Ali's case : [1970]76ITR696(SC) did not stand abrogated.

(4) In a nutshell, the Tribunal came to the conclusion that penalties could be imposed on the assessee in respect of the said assessment years on the basis as it stood prior to April 1, 1968, and the concealed income could be the interest which accrued on the bank deposits in different years in question. The Tribunal found that if the penalties were calculated on the said basis, the minimum penalty imposable for every one of the years concerned would be less than Rs. 1,000 and, therefore, the jurisdiction to levy penalty under Section 271(1)(c) would be that of the Income-tax Officerand not of the Inspecting Assistant Commissioner. The orders of the Inspecting Assistant Commissioner imposing penalty over different years in question, were, therefore, held to be without jurisdiction and the same were set aside.

9. On the application of the Additional Commissioner of Income-tax, the aforesaid questions of law have been referred to us. Before answering these questions it will be convenient to notice the relevant legislative amendment introduced in Section 271(1)(c). When the Income-tax Act, 1961, came into force Section 271(1)(c) stood as under :

271. Failure to furnish returns, comply with notices, concealment of income, etc.--(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, or deliberately furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,--

(i) in the cases referred to in Clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax ;

(ii) in the cases referred to in Clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent. but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income ;

(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct, income.'

10. By the Finance Act of 1964 the word 'deliberately' was omitted in Sub-section (1)(c) and the Explanation was added to Sub-section (1) with effect from April 1, 1964.

11. By the Finance Act of 1968, with effect from April 1, 1968, the present Clause (iii) of Sub-section (1) was substituted for the old clause. The present clause is as under :

'(iii) In the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.'

12. It may be stated that Section 271(1), as it originally stood before the aforesaid amendments, was substantially identical with the provisions ofsection 28(1) of the repealed Act of 1922 (we are not concerned with the difference brought about by the new Act in taking away the jurisdiction of the Appellate Tribunal to impose penalty).

13. So far as the first question referred to us is concerned, we may state that we do not agree with the approach of the Tribunal that the rule relating to the assessment proceedings would also be applicable to the present case. In the Division Bench decision of this court in Commissioner of Income-tax v. Data Ram Satpal : [1975]99ITR507(All) it was held that the penalty proceedings cannot be equated with assessment proceedings. The said decision was rendered with reference to the Explanation added by the Finance Act of 1964. However, the ratio would be equally applicable to the amendments introduced by the Finance Act of 1968. It was laid down that any one who files an incorrect return after April 1, 1964, is liable to be dealt with according to the amended provisions of Section 271(1)(c) regardless of the year to which the return relates. It was further held (page 512):

'It is true that penalty is also imposed in respect of a particular assessment year, but penalty proceedings are not part of assessment proceedings and, therefore, the principle that the law applicable under the Income-tax Act to a particular assessment year is the law prevailing on the 1st day of April of that year does not apply to penalty proceedings. In our opinion the law which will apply to penalty proceedings will be the law as it stands on the day on which the default is committed. Now, in cases of concealment or of furnishing inaccurate particulars the date of such default will be the date on which the return is filed irrespective of the assessment year to which it relates.'

14. However, despite our disagreement with the Tribunal, we agree with the Tribunal on the alternative ground which it advanced for the applicability of the law as it stood on April 1, 1968, in the instant case. As stated above, the Tribunal held that, so far as the revised returns made after April 1, 1968, were concerned there was no concealment of income. The concealment was only in respect of the original returns made before April 1, 1968, and the concealment was confined only to the interest income accruing over the different years in question. Moreover, in Commissioner of Income-tax v. Ram Achal Ram Sewak : [1977]106ITR144(All) a Division Bench has held that the relevant Return for the purposes of Section 271 is the original return filed by the assessee and not the return filed subsequent thereto. In this view of the matter, as, admittedly; the original returns were filed before April 1, 1968, therefore, the Tribunal was right in holding that the law applicable to the assessment years in question would be the law which stood prior to April 1, 1968. In other words, the amendments brought about by the Finance Act of 1968 With effect from April 1, 1968, would not be applicable to the assessment years in question.

Question No. 2.

15. So far as this question is concerned, in our opinion, the Tribunal was not right in holding that even though the returns of income had been filed after April 1, 1964, the Explanation added on April 1, 1964, by the Finance Act of 1964 would not be applicable to the assessment years 1962-63 and 1963-64. I have already pointed out above that the said Division Bench pronouncement of this court in Commissioner of Income-tax v. Data Ram Satpal : [1975]99ITR507(All) has held that penalty proceedings cannot be equated with assessment proceedings. It is unnecessary to repeat the discussion which has been noticed under the first question. We, therefore, hold that the Tribunal was not correct in law in holding that even though the returns of income were filed after April 1, 1964, still in respect of the assessment years 1962-63 and 1963-64, the Explanation added by the Finance Act of 1964 would not be applicable. Question No. 3

16. We agree with the Tribunal that the law laid down in Anwar Ali's case : [1970]76ITR696(SC) has really not been affected by the Explanation added to Section 271(1) on April 1, 1964. The Explanation has been held to be a mere rule of evidence. It merely raises a rebuttable presumption but the basic principle laid down in Section 271(1)(c) still remains, namely, that there should have been a concealment of the particulars of the income or an inaccurate furnishing of such particulars. In Anwar Ali's case : [1970]76ITR696(SC) the Supreme Court laid down as under :

'It must be remembered that the proceedings under Section 28 are ofa penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to saythat the mere fact that the explanation of the assessee is false does notnecessarily give rise to the inference that the disputed amount representsincome. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it isgood evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amountrepresented income and that the assessee had consciously concealed theparticulars of his income or had deliberately furnished inaccurateparticulars

In the present case, it was neither suggested before the High Court nor has it been contended before us that, apart from the falsity of the explanation given by the assessee, there was cogent material or evidence from which it could be inferred that the assessee has concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount was a revenue receipt.'

17. In the instant case the mere fact that the explanation given by the assessee in respect of the bank deposits was not accepted does not necessarily lead to the conclusion that the said deposits were concealed incomes or that the assessee furnished inaccurate particulars of his income. The nature of penalty proceedings as quasi-criminal has not undergone any change by the addition of the Explanation to Section 271(1). It merely affects the onus of proof and does nothing more than that. We find that our view is supported by a decision of the Punjab and Haryana High Court in Additional Commissioner of Income-tax v. Karnail Singh V. Kaleran .

Question No. 4 :

So far as this question is concerned, we are in agreement with the Tribunal that as the minimum penalties imposable in respect of various years in question were less than Rs. 1,000 in respect of every one of these years, therefore, the Income-tax Officer alone had the jurisdiction to levy the penalties and not the Inspecting Assistant Commissioner. This conclusion flows from our agreement with the Tribunal that the law which was applicable to the assessment years in question was the law governing penalties which stood prior to April 1, 1968, and that there was no concealment and no furnishing of inaccurate particulars of income in so far as the bank deposits were concerned.

18. Accordingly, our answers to the questions referred to us are as follows :

Question No. 1.--In the affirmative, in favour of the assessee and against the department.

Question No. 2.--In the negative, against the assessee and in favour of the department.

Question No. 3.--In the affirmative, in favour of the assessee and against the department.

Question No. 4.--In the affirmative, in favour of the assessee and against the department.

19. The assessee shall be entitled to his costs which we assess at Rs. 300.


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