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Amjad Ali Nazir Ali Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 817 of 1973
Judge
Reported in[1977]110ITR419(All)
ActsIncome Tax Act, 1961 - Sections 139(5) and 271(1)
AppellantAmjad Ali Nazir Ali
RespondentCommissioner of Income-tax
Appellant AdvocateGopal Behari and ;K.B. Bhatnagar, Advs.
Respondent AdvocateDeokinandan, Adv.
Excerpt:
.....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. 12. now, let us examine the position by reference to the explanation added to section 271. now, a revised return validly filed under section 139(5), which supplants the original return, has got to be taken into consideration for the purposes of ascertaining whether failure to return the correct income arose from any fraud or wilful neglect on the part of the assessee. to hold otherwise would be rendering the provisions of section 139(5)..........'7. in d.v. patel & co. v. commissioner of income-tax : [1975]100itr524(guj) the assessee filed returns showing an income of rs. 23,957. he thereafter filed a revised return showing an income of rs. 44,800. the income-tax officer passed an assessment order after the revised return had been filed computing the income at rs. 72,610. thereafter, proceedings under section 271(1)(c) of the income-tax act were taken on the ground that the amount as originally returned fell short of 80% of the assessed income. on appeal to the appellate assistant commissioner, an amount of rs. 23,610 was deleted from the addition made by the income-tax officer. proceedings were also taken against the assessee for imposition of penalty. in the penalty proceedings, it was contended by the assessee that.....
Judgment:

C.S.P. Singh, J.

1. The Income-tax Appellate Tribunal, Delhi Bench 'C', has referred the following question for our opinion :

' Whether, on the facts and in the circumstances of the case, the minimum penalty to be levied was to be determined by reference to the tax that would have been avoided if the first return submitted had been accepted or to the tax that would have been avoided if the second revised return submitted by the assessee had been accepted ' The assessee is a registered firm doing business in tobacco. For the assessment year 1962-63, the assessee submitted a return of income on August 17, 1962, declaring an income of Rs. 32,665. He filed a revised return showing an income of Rs. 55,000 on July 30, 1963. A second revised return was submitted on May 14, 1965, showing an income of Rs. 85,000.

2. An assessment order was first passed on May 21, 1964, i.e., before the second revised return was filed and the total income computed by the Income-tax Officer was Rs. 1,62,257. On appeal, the order of the Income-tax Officer was confirmed, but the Tribunal set aside the assessment order and directed the Income-tax Officer to make a fresh assessment after giving the assessee an opportunity of producing necessary evidence to prove the contention regarding the genuineness of certain loans. In pursuance of this order, the Income-tax Officer made a fresh assessment on November 21, 1968, determining the total income at Rs. 1,17,779. This was reduced in appeal to Rs. 1,13,277 by the Appellate Assistant Commissioner. The income ultimately determined included an amount of Rs. 59,054 on account of unexplained portion of the investment in the Shanker Bidi Factory. The total investment by the assessee in this factory was determined at Rs. 2,76,763, but the income-tax authorities were ultimately satisfied about the investment to the extent of Rs. 2,17,709. The balance, i.e., Rs. 59,054, was treated as the assessee's income from undisclosed sources. Thereafter, proceedings under Section 271(1)(c) were taken and as, apparently, a sum of more than Rs. 1,000 was leviable as penalty, the matter was taken by the Inspecting Assistant Commissioner of Income-tax. He imposed a penalty of Rs. 15,000. The petitioner, thereafter, filed an appeal before the Tribunal. Before the Tribunal, it was contended that no penalty was leviable as the assessee had submitted the first revised return voluntarily without any initiative from the Income-tax Officer, and the second revised return was filed as a measure of compromise. The Tribunal held that the assessee was guilty of concealment, but considering the fact that it had co-operated in the assessment proceedings, it directed the levy of minimum penalty with respect to his first return. As regards the contention of the assessee that there was no concealment on his part as he had disclosed the correct income in the revised returns, it held that the revised returns were filed by the assessee when he was faced with the situation that he could not sustain the original return. In this connection, the Tribunal found that the Income-tax Officer, Rampur, had on January 8, 1963, written to the Income-tax Officer, Baroda, to make enquiries of the assets of the assessee, particularly the godown built at Savli. The Income-tax Officer, Baroda, wrote to the Income-tax Officer, Rampur, that enquiries in the matter had been conducted and the godown had been constructed by the assessee. It further transpires that in the original return the assessee had not shown certain assets owned by it, viz., a jeep purchased for Rs. 15,048 and a godown at Rampur constructed at a cost of Rs, 7,000. It also transpired that the assessee had not shown loans advanced to Shanker Bidi Factory in his books. These loans amounted to Rs. 2,76,763. The assessee claimed that certain amount had been taken by it from other parties for advancing the loan. These transactions were, however, not shown in the books of the assessee.

3. In this reference, we are only concerned with the question as to whether the penalty has to be determined with reference to the first return filed by the assessee or with reference to the second revised return. Section 271(1)(c) relating to the provision for imposition of penalty runs :

'271. (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 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.' Clause (iii) which fixes the quantum of penalty was amended by the Finance Act, 1968, with effect from 1st April, 1968, but we are not concerned with the amendment in the present case as the penalty relates to an earlier year, and the Inspecting Assistant Commissioner has imposed penalty with reference to tax which would have been avoided if income as returned by the assessee had been accepted as correct.

4. Counsel for the assessee contended that inasmuch as the assessee had filed a revised return before the assessment order came to be passed, it was that return alone which could have been considered by the Income-tax Officer, and the income-tax authorities fell into an error in considering the first return. The value to be attached to a revised return has been considered in a number of cases and we will now refer to them.

5. In Commissioner of Income-tax v. Angara Satyam : [1959]37ITR230(AP) , a case arising under Section 28 of the old Income-tax Act, the phraseology is more or less in pari materia with the provisions of the unamend-ed Section 271(1)(c) and the third clause thereof. It has been held that where an assessee deliberately omits or conceals full particulars of income and files a revised return under Section 23, or in response to a notice under Section 34, he becomes liable to the penalty. The view taken rested on the use of the words ' income as returned ' in the section, which according to their Lordships of the Andhra Pradesh High Court related to something which had already been done by the assessee. It was also held that, so far as a revised return is concerned, all that was permitted by Section 23(3) of the old Act was to allow the assessee to file a revised return where he makes a genuine default, omission or wrong statement, and does not apply to cases of deliberate concealment. In Vadilal Ichhachand v. Commissioner of Income-tax : [1957]32ITR569(Bom) , the assessee had filed a return showing a total income of Rs. 7,038. The Income-tax Officer on examination of the books of the assessee discovered that the assessee had not disclosed an income of Rs. 17,548. The assessee filed on the same date a revised return declaring his total income to be Rs. 24,528 which included a sum of Rs. 17,548. The income-tax authorities came to the conclusion that the income had been deliberately concealed by the assessee in his return and imposed a penalty. On a reference, the Bombay High Court held that inasmuch as under Section 28(1)(c) of the Indian Income-tax Act, 1922, penalty is payable on the income which would have been avoided had the return been accepted, it is the first return filed by the assessee which is relevant for the purpose of imposition of penalty.

6. In the case of Sivagaminatha Moopanar & Sons v. Commissioner of Income-tax : [1964]52ITR591(Mad) it was held that where the assessee had concealed his income, or deliberately gave false particulars in his return, the mere fact that he subsequently rectified it, would not avoid the applicability of Section 28{l)(c) of the Income-tax Act. This case reflects the position of law as obtained before the decision of the Supreme Court in Commissioner of Income-tax v. S. Raman Chettiar : [1965]55ITR630(SC) . After the decision of the Supreme Court in 5. Raman Chettiar : [1965]55ITR630(SC) it began to be contended on behalf of the assessee that inasmuch as a revised return is also a return under Section 22 of the Act, in cases where a revised return has been filed giving correct particulars, no penalty was exigible under Section 28 of the old Income-tax Act. The Madras High Court considered this contention in the case of Commissioner of Income-tax v. Ramdas Pharmacy : [1970]77ITR276(Mad) . In this case a return was filed disclosing a net profit of Rs. 54,107. The Income-tax Officer found that the gross profit disclosed by the assessee was too low. He scrutinised the account books and discovered certain discrepancies between the assessee's books and the books of Messrs. Amrit Laboratories Ltd. from whom the assessee had purchased goods of the value of rupees four lakhs. He also, discovered huge deposits amounting to Rs. 2,79,112 in the bank accounts of some of the partners of the firm. The assessee was called upon to explain these discrepancies. An explanation was given for these discrepancies but was not accepted and he added an amount of Rs. 84,306 to the income of Rs. 54,107 originally returned by the firm. Proceedings under Section 28(1)(c) of the Income-tax Act were taken and orders of penalty were passed. Appeals were preferred against both these orders. In appeal, the addition made by the Income-tax Officer to the income was reduced. So far as the penalty appeal was concerned that was dismissed. The assessee filed appeals before the Income-tax Appellate Tribunal. The quantum appeal was dismissed. In the penalty appeal, the Tribunal held that the conduct of the assessee in filing revised return bringing in the entire excess sale proceeds divided between three partners without bringing it into the sales account should be taken into consideration, applying the provisions of Section 28(1)(c) of the Income-tax Act. It held that the Income-tax Officer was not justified in ignoring the revised return which disclosed the true income of the assessee. It held that it appeared that the sale proceeds out of which the additional income arose had been shared by three partners without the knowledge of the other two partners and without bringing them into account and this being so, there was no question of applying Section 28(1)(c) of the Income-tax Act, as there was no deliberate concealment or furnishing of inaccurate particulars. In this view of the matter, it deleted the penalties. After considering a large number of decisions including the decision of Commissioner of Income-tax v. S. Raman Chettiar : [1965]55ITR630(SC) the Madras High Court observed--See : [1970]77ITR276(Mad) :

' But the above observations were made by the Supreme Court in a different context and not with reference to the assessee's liability under Section 28(1)(c). We are not in a position to accept the view of the learned counsel for the assessee that the decision of the Supreme Court in Commissioner of Income-tax v. S. Raman Chettiar : [1965]55ITR630(SC) had changed the entire legal position enunciated in the decisions set out above that the revised return should be voluntary to avoid penalty under Section 28(1)(c) and that the filing of a revised return under Section 22(3) will not expatiate the contumacious conduct, if any, on the part of the assessee in not having disclosed a true income in the original return. We are, at the same time, not willing to accept the contention put forward on behalf of the revenue that the filing of the second return is of no consequence at all, while considering the liability of the assessee under Section 28(1)(c) of the Act. As expressed by this court in Sivagaminatha Moopanar 6- Sons v. Commissioner of Income-tax : [1964]52ITR591(Mad) it is not possible to construe the original return alone in isolation without reference to the assessee's conduct subsequent to the filing of the original return. We are of the view that all the facts and circumstances commencing with the filing of the original return and ending with the assessment may be taken as relevant for considering the assessee's liability for penalty under Section 28(1)(c). '

7. In D.V. Patel & Co. v. Commissioner of Income-tax : [1975]100ITR524(Guj) the assessee filed returns showing an income of Rs. 23,957. He thereafter filed a revised return showing an income of Rs. 44,800. The Income-tax Officer passed an assessment order after the revised return had been filed computing the income at Rs. 72,610. Thereafter, proceedings under Section 271(1)(c) of the Income-tax Act were taken on the ground that the amount as originally returned fell short of 80% of the assessed income. On appeal to the Appellate Assistant Commissioner, an amount of Rs. 23,610 was deleted from the addition made by the Income-tax Officer. Proceedings were also taken against the assessee for imposition of penalty. In the penalty proceedings, it was contended by the assessee that inasmuch as an amount of Rs. 23,610 had been deleted on appeal, the Explanation to Section 271(1)(c) of the Income-tax Act did not apply. The Tribunal, however, did not accept the explanation of the assessee that there was no wilful or gross negligence in not including the profit under Section 41(2) at the time of filing the original return, and held that the filing of the revised return was not of much consequence and could not absolve the assessee from penalty. Their Lordships of the Gujarat High Court held that in considering cases which fell under the Explanation to Section 271(1)(c) of the Act, although the assessee has to prove that there is no gross or wilful neglect on his part, the nature of the burden is that akin to the civil cases on preponderance of probabilities. The assessee need not file any positive material to discharge that burden and may rely on the material which is on the record irrespective of whether it is produced by him or not. It was held, following the decision of the Madras High Court in Commissioner of Income-tax v. Ramdas Pharmacy : [1970]77ITR276(Mad) , that the original return filed by an assessee cannot be treated in isolation without reference to the assessee's conduct subsequent to the filing of the original return, which in some cases may consist of filing a revised return. A revised return has to be taken into account for considering whether the penalty should be imposed on the assessee. The principle deducible from these cases is that where a return has been filed concealing deliberately certain items of income or furnishing inaccurate particulars, the filing of a revised return is immaterial and the assessee becomes liable to penalty on the basis of the original return. However, the revised return filed by the assessee has got to be taken into account, and cannot be ignored in cases where penalty is imposed by application of the Explanation to Section 271(1)(c) of the Income-tax Act, 1961.

8. Counsel for the assessee is, however, not content with this exposition of law and has urged, as has been seen earlier, that the revised return completely supplants the original return and penalty and the rate in respect thereof has got to be adjudged with reference to the revised return. The provision for filing a revised return was, under the old Act, Section 22, Sub-section (3), which runs as under :

' 22. (3) If any person has not furnished a return within the time allowed by or under Sub-section (1) or Sub-section (2), or having furnished a return under either of those sub-sections, discovers any omission or wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made.'

9. In the new Act, the provision is Section 139(5), which runs as under :

'139. (5) If any person having furnished a return under Sub-section (1) or Sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.'

10. It will be seen that so far as revised returns are concerned, the provisions under the old Act and the new Act are in pari materia. Now, after the decision of the Supreme Court in Commissioner of Income-tax v. S. Raman Chettiar : [1965]55ITR630(SC) , there cannot be any doubt that the revised return is also a return under Section 22 of the Indian Income-tax Act. Since the language of Section 139(5) of the new Act is in pari materia, it must be held that the revised return filed under Section 139(5) is a return contemplated by Section 139. But the question is whether the filing of the revised return obliterates the original return. S. Raman Chettiar's case : [1965]55ITR630(SC) does not throw light on this controversy. In order to answer the question posed, it will be useful to concentrate on the language of Section 139(5) of the Act. It is apparent that a revised return can be filed only where any person discovers any omission or any wrong statement therein. The use of the word 'discovers', in our view, connotes discovery of some omission or wrong statement in the return, of which the assessee was not aware at the time of filing of the original return. It cannot cover a case where the omission or wrong statement contained in the first return is deliberate, for, in that case, it cannot be said that the revised return was filed by the assessee on discovery of any omission or wrong statement, as he would all the time have knowledge of the omission or wrong statement in the original return. This being so, on the language of Section 139(5), an assessee who had deliberately made any omission or wrong statement in his original return cannot avail himself of the advantage given by this subsection of filing a revised return. In cases where an assessee has deliberately omitted particulars of his income or made wrong statement in the return, the revised return filed by him would be outside the pale of section 139(5) of the Act, and it would not be a revised return as contemplated by ^^ Act. Once this position is reached the question of considering the revised return for the purposes pf penalty would hardly arise, for, in the eye of law, there would be no revised return as contemplated by Section 139(5). Such a revised return cannot supplant the original return and, for the purposes of penalty, it will be only the original return that will have to be looked into. The position would, however, be different where the omission or the wrong statement in the return is not deliberate. In such cases, where the assessee discovers any wrong statement, the Act permits filing of the revised return. The discovery of the omission or wrong statement may be by the assessee himself, or may come to the knowledge of the assessee during assessment proceedings, even at the pointing out of the Income-tax Officer provided that the assessee was unaware of the omission or the wrong statement at the time of the filing of the original return. It was contended that where the omission or wrong statement is pointed out by the Income-tax Officer and a revised return filed thereafter, no advantage can be taken of the revised return by the assessee. We are not impressed by this argument. All that Section 139(5) postulates is that the assessee must discover the omission or wrong statement in the first return. It does not state the sources on the basis of which the discovery is made by the assessee. This being so, we cannot read the limitation suggested on behalf of the department that discovery of the omission or wrong statement must be on account of information received from sources other than the Income-tax Officer. Cases may arise where depreciation, development rebate and exemptions are claimed in excess of what is permissible under the Act, on a bona fide interpretation of a complex provision of the Act, and if in such cases the Income-tax. Officer points out the provision and the correct interpretation to be put thereon, and in case where the assessee has not deliberately claimed larger amounts than are permissible on a bona fide misinterpretation of law, we see no bar to the filing of a revised return under Section 139(5).

11. We may take another example. Take the case of valuation of stock-in-trade. The assessee adopts a valuation of stock-in-trade on a particular method of valuation bona fide believing that the method of valuation adopted by him correctly represents the value of his stock-in-trade. In the course of assessment proceedings, it is pointed out by the Income-tax Officer that the method of valuation adopted for valuing the stock-in-trade is not appropriate, and the stock should have been valued on a different method. We see no impediment to the assessee accepting the method of valuation suggested to him by the Income-tax Officer in filing a revised return. However, this cannot apply to cases where the method of valuatio.n adopted by the assessee is such which is unknown in commercial circles. In such cases since the assessee is given a right to file a revised return, the original return containing omissions and wrong statements therein would, in our view, be supplanted by the revised return. After all, a revised return filed under Section 139 of the Act effects an amendment of the original return, and if the amendment has been made in accordance with Section 139(5) we see no logical reason in holding that even after the amendment, there are two returns for the same year. We may appropriately take the case of a plaint filed in a suit. Once an amendment is allowed in the plaint and an amended plaint filed, the plaint for the purposes of a suit is the amended plaint and the unamended plaint no longer survives. The same principle can be appropriately applied to revised returns which are filed in conformity with Section 139(5) of the Act. Thus, in cases where a revised return is filed in conformity with Section 139(5) of the Act, it would be the revised return which has got to be seen for penalty purposes and once the revised return discloses the true income, the question of imposition of any penalty does not arise. It will not arise on account of two considerations: (1) because there is no concealment or deliberate furnishing of inaccurate particulars by the assessee; and (2) because the revised return supplants the original return. Once this position is reached, the question of considering the rate of penalty payable does not arise, because there has been no concealment of the particulars of income or deliberate furnishing of inaccurate particulars, the case would not fall under Section 271(1)(c) and as such the question of applying the provisions of Section 271(1)(iii) will not arise.

12. Now, let us examine the position by reference to the Explanation added to Section 271. Now, a revised return validly filed under Section 139(5), which supplants the original return, has got to be taken into consideration for the purposes of ascertaining whether failure to return the correct income arose from any fraud or wilful neglect on the part of the assessee. In such cases, the question whether the assessed income is more than 80% of the returned income, has got to be adjudged with reference to the revised return and the question of fraud or gross or wilful neglect has also got to be adjudged with reference to that return, and not the earlier return. To hold otherwise would be rendering the provisions of Section 139(5) redundant, for we cannot hold at one stage that a revised return is as good as any other return under Section 139, and for purposes of penalty take the view that a revised return validly filed is meaningless and has no relevance for the purposes of adjudging the penalty. The cases which were referred to earlier, where the view has been taken that it is the first return that has got to be taken into account, are all cases where there was deliberate concealment of income by the assessee. In such cases, on the view that we take, no revised return could at all have been filed by the concerned assessee, as the requirement of Section 22(3) of the old Act for filing a revised return could not be complied with on account of concealment, and the question of taking into account the revised return does not arise.

13. Keeping these principles in view, let us now examine the present case. In the present case, there is a clear finding that there was concealment by the assessee. This being so, the assessee could not have validly filed a revised return, and as such the question of fixing the rate of penalty with reference to the revised return did not arise at all as the revised return filed by him was not a return contemplated by Section 139(5) and as such could not be taken into account.

14. We, accordingly, answer the question referred by saying that the penalty which was to be levied has to be determined by reference to the tax which would have been avoided if the first return filed by the assessee had been accepted. As the reference has been answered against the assessee, the department is entitled to its costs which is assessed at Rs. 200. Counsel's fee is assessed at the same figure.


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