Skip to content


Commissioner of Income-tax Vs. Ram Achal Ram Sewak - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 721 of 1971
Judge
Reported in[1977]106ITR144(All)
ActsIncome Tax Act, 1961 - Sections 148, 271 and 271(1)
AppellantCommissioner of Income-tax
RespondentRam Achal Ram Sewak
Appellant AdvocateDeokinandan, Adv.
Respondent AdvocateP.N. Pachauri and ;N.N. Pachauri, Advs.
Excerpt:
.....of his income or deliberately furnished inaccurate particulars of such income. --where the total income returned by any person is less than eighty per cent, of the total income (hereinafter in this explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this..........furnished inaccurate particulars of such income............. explanation.--where the total income returned by any person is less than eighty per cent, of the total income (hereinafter in this explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this.....
Judgment:

C.S.P. Singh, J.

1. The Income-tax Appellate Tribunal has referred the following question for our opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the provisions of Section 271(1)(c) and the Explanation thereto are not attracted in respect of the assessment year under consideration ?'

The assessee is a Hindu undivided family and carried on business in kirana and cloth at Faizabad during the assessment year 1963-64, the previous year being the financial year ending on March 31, 1963. The Income-tax Officer completed the original assessment for the aforesaid yearon a total income of Rs. 16,818. On receiving information that the asses-see had made a number of investments in the names of its various family members, the assessment was reopened by issue of a notice under Section 148 of the Income-tax Act. The assessee in response to the notice filed a revised return and disclosed the same income on which it was originally assessed. A supplementary assessment was made on January 15, 1966, by including the following amounts :

Rs.

(1)

Unexplained investments

50,000

(2)

Interest received thereon

2,783

52,783

Thereafter, the Income-tax Officer initiated penalty proceedings under Section 271(1)(c), and inasmuch as, in his opinion, the penalty imposable exceeded Rs. 1,000, he referred the matter to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner thereafter issued a notice under Section 274(2) of the Act to the assessee requiring it to show cause why penalty should not be imposed. In response to the notice, the assessee contended, inter alia, that:

(i) the assumption of jurisdiction by the Inspecting Assistant Commissioner was not valid as he was not satisfied that the assessee had concealed the particulars of his income during the course of the assessment proceedings, which was a condition for initiation of the penalty proceedings under Section 271(1)(c) of the Act;

(ii) that the deposits were in the names of members of the assessee-Hindu undivided family, and there was no proof nor any presumption that the deposits were made by the assessee-family ;

(iii) that the Tribunal had accepted the assessee's explanation at least partially that the investments in various years were out of intangible additions made by the departmental authorities in the case of the assessee in the past;

(iv) that the Tribunal's order suffered from certain apparent mistakes which, if rectified, would considerably reduce the additions made in the assessment year ; and

(v) that, lastly, the concealment was not proved

The Inspecting Assistant Commissioner rejected the contentions of the assessee and, following the decisions of this court in the case of Lol Chand Gopal Das v. Commissioner of Income-tax : [1963]48ITR324(All) and Haji Abdul Rahman Abdul Qayum v. Commissioner of Income-tax : [1965]56ITR172(All) , imposed a penalty of Rs. 50,000. The assessee thereafter appealedto the Tribunal. It was contended on behalf of the department that inasmuch as the return in the reassessment proceedings was filed on August 9, 1965, the question of penalty had to be adjudged with reference to Section 271(1)(c) of the Act as it stood after the amendment made in the section with effect from April 1, 1964. This stand was contested by the assessee and it was urged on his behalf that the relevant date for the purposes of the penalty proceedings was the date of the original return, which return had been filed much before April 1, 1964, and as such the penalty proceedings had to be decided in terms of Section 271(1)(c) of the Act as it stood before the amendment. On merits, it was contended that there was no investment by the Hindu undivided family but that the two investments in question were joint investments of two members of the Hindu undivided family. The Tribunal held that it had not been conclusively established that the investments were made by the Hindu undivided family which was the assessee. It also held that the proceedings had to be decided with reference to Section 271(1)(c) as it stood before its amendment and as such recourse to the Explanation added to that sub-section could not be taken and that the relevant date for purposes of Section 271(1)(c) was the date on which the original return was filed.

2. Counsel for the department has urged that the Explanation to Section 271(1)(c) of the Act enacts a rule of evidence, which pertains to the domain of procedural law, and inasmuch as penalty proceedings against the assessee were pending, when the Explanation to Section 271(1)(c) was introduced by Section 40 of the Finance Act, 1964, with effect from April 1, 1964, and as such the penalty proceedings had to be decided by recourse to the Explanation, and the Tribunal has committed an error in not doing so Section 271(1)(c) of the Income-tax Act, 1961, together with the Explanation may be quoted:

'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.............

Explanation.--Where the total income returned by any person is less than eighty per cent, of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section.'

It will be seen that by the introduction of the Explanation, a rebuttable presumption arises, in case the total income returned by an assessee is less than 80% of the total income as assessed under Section 143, or Section 144 or Section 147, and reduced by such expenditure as are set out in the Explanation. This presumption can be rebutted by the assessee in case he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. Now, in this case, two returns had been filed by the assessee, one much before the Explanation was introduced in the section, and the other after the amendment. In the case of Saeed Ahmed v. Inspecting Assistant Commissioner of Income-tax : [1971]79ITR28(All) , where the vires of Section 271(1)(c) and the Explanation was challenged on the ground that it offended article 14 of the Constitution, a Division Bench of this court has held that the Explanation provides nothing more than a rule of evidence, and such a rule was within the legislative competence of the legislature. In arriving at this conclusion, the Division Bench placed reliance on the principles laid down in the case of Ishar Ahmad Khan v. Union of India : AIR1962SC1052 . But the mere fact that the Explanation to Section 271 pertains to the domain of procedural law, does not lead to the result that the Explanation must be made applicable to all pending proceedings, for even if the proposition canvassed for by the counsel for the department is accepted, we have still to see as to whether the language of the Explanation is such as can be made applicable to cases of concealment which relate to assessment years prior to the 1st April, 1964. Now, when the assessee filed his original return, Section 271(1) read as under :

'If the Income-tax Officer or the Appellate Assistant Commissioner in 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.........'

It will be noticed that after Section 271 was amended by Section 40 of the Finance Act, 1964, the word 'deliberately' occurring in Section 271(1)(c) between the word 'or' and the word 'furnished' was omitted. Now, so far as Section 271(1) is concerned, it is not denied that this sub-clause is not a rule of evidence, but is one of substantive law. Therefore, so far as penalty in respect of the original return is concerned that has got to be adjudged with reference to Section 271(1)(c) as it stood before the amendment. The penalty under the unamended sub-clause could have been imposed only in case an assessee had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. It is apparent that the fiction created by the Explanation cannot possibly apply to cases under Section 271(1)(c) as it stood before the amendment.

3. The reason is that the fiction that is created by the Explanation extends only to cases where 'the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income', and not to cases 'where an assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income', as was required by Section 271(1)(c) of the Act as it stood unamended. It appears, that along with the introduction of the Explanation with effect from April 1, 1964, which created a fiction in cases where the assessee had concealed the particulars of his income, Section 271(1)(c) was also amended, and the word 'deliberately' omitted, so as to bring this sub-clause in harmony with the newly added Explanation and to permit the fiction created by the Explanation to have full effect. From a perusal of Section 271(1)(c) and the Explanation, we are clearly of the view that the legislature did not intend the Explanation to be applicable to cases where the return is filed before 1st April, 1964, as the language used by the fiction created by it cannot be appropriately applied to such cases.

4. Counsel for the department has, however, urged that even if the Explanation to Section 271(1)(c) could not be applied in respect of the first return, it was applicable to the return filed by the assessee in pursuance to the notice under Section 148 of the Act, inasmuch as this return was filed after the Explanation had come into force. This contention requires 'dose scrutiny. A penalty is imposable by the Income-tax Officer or the Appellate Assistant Commissioner, if they are satisfied in the course of any proceedings under the Act, that an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. The amount of penalty leviable in respect of such concealment or furnishing of inaccurate particulars is set out in Section 271(1)(c)(iii) of the Act which may be quoted :

'271. Failure to furnish returns, comply with notices, concealment of income, etc,--(1) If the Income-tax Officer or the Appellate Assistant Comissioner in the course of any proceedings under this Act, is satisfied that any person-

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--......... (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.'

This sub-clause shows that the amount of penalty is fixed by reference to the amount of income in respect of which concealment has been made or inaccurate particulars have been furnished, and the maximum that may be imposed is a sum which does not exceed twice the amount of income conconcealed. The question that arises is as to whether in a case where an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income in the original return, and as such he becomes liable to penalty, a second penalty can be imposed for concealment or inaccurate furnishing of particulars of income when he files a return in pursuance of a notice under Section 148, The repercussions of the acceptance of the argument raised by counsel for the department may be examined with reference to particular cases. To begin with, we shall take a case where an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income in his original return as also in the return filed in pursuance of a notice under Section 148. If the argument of the department is accepted, the assessee would become liable to two penalties, one in respect of the concealment or inaccurate furnishing of particulars in respect of the original return, and the other in respect of the second, when he filed a return in pursuance of a notice under Section 148, and the maximum penalty that the Income-tax Officer can impose could be twice the amount of the income concealed on each occasion, with the result that the total penalty for the concealment would be four times the amount of income concealed. We do not feel that such a consequence was intended by the legislature. This apart, where an assessee has concealed the particulars of his income or furnished inaccurate particulars of such income once, it cannot be said that if he repeats the same act again, there is a fresh concealment or furnishing of inaccurate particulars of the same income. There are other difficulties in accepting this contention. Suppose an assessee has in the original return which was filed before April 1, 1964, concealed or furnished inaccurate particulars in respect of income of Rs. 50,000 while in the return filed in pursuance of a notice under Section 148, there is no concealment or the concealment is only of Rs. 25,000. If the relevant return for the purposes of fixing the penalty is filed in pursuance of the proceedings under Section 148, no penalty can be imposed in the first case while in the second case, the penalty would be reduced as the concealment in the second return is less than that in the original return. The legislature, it seems to us, did not intend to allow such an assessee to go scot-free in the first case or subject him to a lesser penalty in the other case. Faced with these anomalies, counsel for the department contended that the penalty would have to be fixed with reference to a return in which there was maximum concealment or furnishing of inaccurate particulars. This argument appears to us to be one of despair, and could be accepted only in case it was possible to recast the entire section, which, however, is not permissible. These considerations impel us to hold 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. The decision in ITR No. 467 of 1971 (decided on 19-4-73), wherein it has been held that the Explanation applies to cases where the return is filed after 1st April, 1964, need not detain us, for in the present case, we have held that the relevant return for the purposes of penalty is the original return and not the revised return, and in this case, the original return as has been seen was filed before the 1st April, 1964,

5. We, accordingly, answer the question in the affirmative and against the department. The assessee is entitled to his costs which are assessed at Rs. 200. Counsel's fee is assessed at the same figure.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //