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Commercial Art Press Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Application No. 555 of 1968
Judge
Reported in[1973]87ITR468(All)
ActsIncome Tax Act, 1961 - Sections 271(1) and 274(2)
AppellantCommercial Art Press
RespondentCommissioner of Income-tax
Appellant AdvocateP.N. Pachauri, Adv.
Respondent AdvocateB.L. Gupta and ;R.R. Misra, Advs.
Excerpt:
.....course of the assessment proceeding that the case attracts section 271(1). the satisfaction contemplated by the opening words of section 271(1) in the course of the assessment proceeding is the satisfaction of the income-tax officer. the condition must be satisfied by the income-tax officer. it is under this first part that the income-tax officer must be satisfied that the case attracts one or more of those clauses and that, therefore, the penalty proceeding should be initiated. but nothing in section 274(2) requiresthat what he does must be done upon his being satisfied in that behalfduring the course of the assessment proceeding. the casereferred by the income-tax officer under section 274(2) to the inspectingassistant commissioner is the proceeding initiated by the income-taxofficer..........is the condition precedent before any action is initiated under section 271(1) for commencing the penalty proceeding. the condition must be satisfied by the income-tax officer. it is he who commences the penalty proceeding. it will be noticed that section 271(1) is divided into two parts. the first part contains clauses (a), (b) and (c) specifying the cases in which a penalty is attracted. it is under this first part that the income-tax officer must be satisfied that the case attracts one or more of those clauses and that, therefore, the penalty proceeding should be initiated. that satisfaction is effected by the income-tax officer daring the pendency of the relevant proceeding before him. the second part deals with the power to be finally exercised in such cases. the conferment of.....
Judgment:

Pathak, J.

1. The Income-tax Appellate Tribunal has referred the following question under Section 256(1) of the Income-tax Act, 1961 :

'Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the Inspecting Assistant Commissioner's order imposing penalty under Section 274(2)/271(1)(c) was valid?'

2. The assessee is a registered firm and derives income from a printing press. Until the assessment year 1962-63 its income was being assessed by applying rates of profit to the sales disclosed and not on the basis of its account books. For the first time, in assessment proceedings for the assessment year 1962-63, the Income-tax Officer scrutinised the account books and discovered various omissions and mistakes in the totals and also found that the balance-sheet had been incorrectly prepared. The net increase in the excess of assets over liabilities came to Rs. 57,082 during the previous year. The assessee explained that part of its records for the relevant year had been washed away by floods' and that the accounts were reconstructed from the material available to it. It admitted that the trial balance could not be reconciled. The Income-tax Officer added the amount of Rs. 57,082 to the total income disclosed by the assessee, and that addition was maintained by the Appellate Assistant Commissioner and thereafter by the Income-tax Appellate Tribunal.

3. The Income-tax Officer, being of opinion that the assessee had concealed the particulars of its income and had furnished inaccurate particulars of such income during the course of assessment proceedings, decided upon action for the levy of penalty. Finding that the minimum penalty imposable exceeded Rs, 1,000 he referred the proceeding for imposition of penalty to the Inspecting Assistant Commissioner under Section 274(2) of the Income-tax Act, 1961. The Inspecting Assistant Commissioner, after allowing the assessee an opportunity of being heard, imposed a penalty of Rs. 20,000. The assessee appealed to the Income-tax Appellate Tribunal. The Tribunal held that as the assessee had not disclosed the excess of Rs. 57,082 in its income it was a case for imposing penalty. But, having regard to the circumstances that a part of the assessee's records were washed away by floods and it was not possible to say with certainty that the excess represented the income of the assessee for the previous year only, the Tribunal reduced the amount of the penalty. On the question whether the procedure adopted in levying the penalty was in accordance with law, the Tribunal observed that the Income-tax Officer was right in first satisfying himself during the course of the assessment proceeding that the assessee had concealed the particulars of his income and on finding that the minimum penalty imposable exceeded Rs. 1,000 he was justified in referring the proceeding to the Inspecting Assistant Commissioner. It was not necessary, the Tribunal point out, that the Income-tax Officer should issue a notice under Section 274(1) for the purpose of satisfying himself that the assessee had been guilty of concealment before referring the case to the Inspecting Assistant Commissioner nor was it necessary that the satisfaction of the Inspecting Assistant Commissioner that the penalty should be levied must be arrived at during the course of the assessment proceeding. In the view that the amount of penalty should be reduced the appeal was partly allowed.

4. Upon the question referred, two points arise for consideration. The first is whether the Tribunal was right in finding that the assessee had concealed particulars of its income and had furnished inaccurate particulars of such income. In the penalty order made by him, the Inspecting Assistant Commissioner pointed out that the total liability disclosed in the balance sheet was inflated by Rs. 10,000. The assessee had shown it at Rs. 1,08,259 whereas it should actually have been Rs. 98,259. An examination of the customer's ledger showed that the assessee had not accounted for the debit balance in the customer's accounts. The debit balances totalled Rs. 58,217.

5. Deducting the opening debit balance amounting to Rs. 25,674 the balance of Rs. 32,543 represented the concealed income. In arriving at these figures the Inspecting Assistant Commissioner referred to the findings in the assessment case. Before the Inspecting Assistant Commissioner it was contended on behalf of the assessee that as the account books were defective it was possible that some of the undisclosed income related to earlier years. The plea was rejected for want of evidence.

6. The Tribunal observed that the excess of assets over liabilities was apparent from the record, and in case the assessee claimed that the amounts received by it did not represent its income it should have disclosed those amounts in Part F of the return. The Tribunal held that the assessee had failed to disclose the excess of Rs. 57,082 in its income and, therefore, penalty was attracted.

7. It is settled law that in the matter of imposing penalty the burden lies on the income-tax department to establish that the assessee has consciously concealed the particulars of his income or has deliberately furnished inaccurate particulars. In Commissioner of Income-tax v. Anwar Ali, [1970] 76 I.T.R. 696, 701; [1971] 1 S.C.R. 446 (S.C.), the Supreme Court said:

'Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting the explanation given by the assessee as false would, prima facie, be sufficient for establishing, in proceedings under Section 28, that the disputed amount was the assessee's income. It must be remembered that the proceedings under Section 28 are of a 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 say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.' (Emphasis is ours).

8. Applying the test contained in that statement of the law we find it difficult to uphold the validity of the order of the Tribunal sustaining the penalty. The Inspecting Assistant Commissioner has pointed out that the total liability disclosed in the balance-sheet was Rs. 1,08,259 whereas it should have been Rs. 98,259. There was a difference of Rs. 10,000. That could possibly have been the result of an innocent totalling mistake. The Tribunal has adverted to the finding of the Income-tax Officer that there were various omissions and mistakes in the totals. What other omissions and mistakes existed has not been indicated. The Inspecting Assistant Commissioner has referred to the omission of the assessee to take into account the debit balances in the customer's account. The assessee explained that they were not taken into account because it was only on the preparation of the bill that the amount was credited in the printing receipts account in the regular ledger. The Inspecting Assistant Commissioner did not come to any specific finding that the explanation was false. Having regard to the nature of the entries, there is no justification for the the observation of the Tribunal that those amounts should have been disclosed in Part F of the return. There was no dispute that there was an increase in the excess of the assets over liabilities, but whether that was conciously and deliberately suppressed is another matter. The Tribunal appears to have accepted the case of the assessee that a part of its records were washed away by floods. Indeed, for that reason it reduced the quantum of penalty. If upon incomplete records the assessee had to reconstruct its accounts there must be something more than mere inaccuracies in the accounts to justify the finding that there was a conscious concealment of income or a deliberate furnishing of inaccurate particulars. It may be a case for enhancing the total income returned by the assessee, but we are not satisfied that there is any material on the record to prove that the assessee consciously concealed the particulars of its income or deliberately furnished inaccurate particulars. In this view of the matter, the penalty imposed cannot be sustained.

9. On the other point, that is whether the procedure adopted in levying the penalty was in accordance with law, the assessee contends before us that, besides the Income-tax Officer, the Inspecting Assistant Commissioner should also have been satisfied in the course of the assessment proceedings that the case fell within Section 271(1)(c). The contention is without substance. In a case such as the present, what the statute contemplates appears to be this. The Income-tax Officer, in the course of an assessment proceeding before him, should first be satisfied that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income. Then, having regard to the amount of income in respect of which the particulars have been concealed or inaccurate particular have been furnished he estimates the minimum penalty imposable by referring to Section 271(1)(iii). It he finds that the minimum penalty imposable does not exceed Rs. 1,000, he has jurisdiction to levy the penalty. But, before doing so, he must, under Section 274(1), hear the assessee or at least give him a reasonable opportunity of being heard. If, thereafter, the Income-tax Officer finds that penalty should be imposed, he will make an order accordingly. If, however, the income-tax Officer finds that the minimum penalty imposable exceeds Rs. 1,000 he must refer the case to the Inspecting Assistant Commissioner under Section 274(2). The Inspecting Assistant Commissioner now has all the powers conferred by the statute for the imposition of penalty and in exercise of those powers he may impose a penalty, provided that before doing so the assessee has been heard or has been given a reasonable opportunity of being heard by reason of the requirement in Section 274(1). It is not necessary that the Inspecting Assistant Commissioner, after the case is referred to him, should begin from the stage from which the Income-tax Officer began. It is not necessary for him to be satisfied in the course of the assessment proceeding that the case attracts Section 271(1). The satisfaction contemplated by the opening words of Section 271(1) in the course of the assessment proceeding is the satisfaction of the Income-tax Officer. It is the condition precedent before any action is initiated under Section 271(1) for commencing the penalty proceeding. The condition must be satisfied by the Income-tax Officer. It is he who commences the penalty proceeding. It will be noticed that Section 271(1) is divided into two parts. The first part contains Clauses (a), (b) and (c) specifying the cases in which a penalty is attracted. It is under this first part that the Income-tax Officer must be satisfied that the case attracts one or more of those clauses and that, therefore, the penalty proceeding should be initiated. That satisfaction is effected by the Income-tax Officer daring the pendency of the relevant proceeding before him. The second part deals with the power to be finally exercised in such cases. The conferment of power is contained in that part. Before reaching the stage when the second part comes into play, the Income-tax Officer decides whether the case is one in which he has jurisdiction to exercise the power contained in that part or it is one over which the Inspecting Assistant Commissioner has jurisdiction. When Section 274(2) declares that the Inspecting Assistant Commissioner shall, for the purpose pf imposing a penalty, 'have all the powers conferred under this Chapter for the imposition of penalty' it refers to the powers contained in the second part of Section 271(1). There is no doubt that before actually imposing any penalty in the exercise of those powers the Inspecting Assistant Commissioner must come to the conclusion that the case is one which attracts Clauses (a), (b) or (c) of section 271(1). He may reach that conclusion after hearing the assessee orgiving him a reasonable opportunity of being heard. It is only then thathe can make the penalty order. But nothing in Section 274(2) requiresthat what he does must be done upon his being satisfied in that behalfduring the course of the assessment proceeding. As we have pointed out, the provision relating to satisfaction in the course of the proceeding is theinitial condition which must be complied with before the penalty proceeding can be commenced at all. The penalty proceeding is not commencedby the Inspecting Assistant Commissioner. Moreover, the statute couldnot have contemplated that the assessment proceeding must be kept pending to enable the Inspecting Assistant Commissioner to exercise the powersof imposing penalty. There is nothing in the context requiring such aconclusion. The pendency of the assessment proceeding would in no wayhelp the Inspecting Assistant Commissioner in deciding whether theorder of penalty should be made. In other words, the pendencyof the assessment proceeding is of no relevance at that stage. The casereferred by the Income-tax Officer under Section 274(2) to the InspectingAssistant Commissioner is the proceeding initiated by the Income-taxOfficer under Section 271(1), when he is satisfied that a person has committed a default mentioned in one of the clauses of that sub-section. It isnot the proceeding pending before the Income-tax Officer in the course ofwhich he is so satisfied.

10. Upon the position in law as we understand it, the contention of the assessee that the penalty order made by the Inspecting Assistant Commissioner is invalid because the assessment proceeding was no longer pending must be rejected.

11. The petitioner relies on Commissioner of Income-tax v. Angidi Chettiar, [1962] 44 I.T.R. 739; [1962] Supp. 2 S.C.R. 640 (S.C.).In our opinion, that case affords no support for the proposition that thesatisfaction of the Inspecting Assistant Commissioner must be arrived atduring the course of the assessment proceeding.

12. In the view we are taking, we are supported by Commissioner of Income-tax v. A.K. Das, [1970] 77 I.T.R. 31, 47 (Cal.), where P.B. Mukharji J. observed with respect to Section 271(1):

'Certain results follow from a provision of this nature. The first is that the authority, prima facie, belongs to the Income-tax Officer. It is before him that the first foundations of penalty are laid. That foundation is his 'satisfaction' in the course of assessment proceedings that there has been concealment. He is, therefore, the fons et origo of this penalty proceeding. Unless he initiates or the Appellate Assistant Commissioner initiates, the Inspecting Assistant Commissioner cannot initiate. In the natural context that is what should be when one remembers that after all the assessment proceedings are being held by the Income-tax Officer or the Appellate Assistant Commissioner who are the persons likely at all to know whether there has been a concealment and not the Inspecting Assistant Commissioner who, not dealing with the regular assessment proceedings, would have little or no knowledge of concealment. It is significant to emphasise also that Section 271 of the Income-tax Act does not breathe a word about the Inspecting Assistant Commissioner.'

13. The learned judge also explained the expression 'for the purpose of' in Section 274(2) to mean 'for the purpose of imposing the penalty and not for commencing the penalty proceedings but for concluding it'.

14. Reference may also be made to Padgilwar Brothers v. Commissioner of Income-tax, [1971] 81 I.T.R. 258 (Bom.-Nag.), where the Bombay High Court held that the power to impose penalty depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act. It was also held that the Inspecting Assistant Commissioner did not lack the power to continue with the penalty proceeding upon the case being referred to him by the Income-tax Officer merely because the assessment proceeding had already been completed by the Income-tax Officer.

15. Considerable reliance has been placed by the assessee on the view expressed by a learned single judge of the Calcutta High Court in Ram Chandra Sarda v. Income-tax Officer, [1970] 78 I.T.R. 325 (Cal.). The learned judge held that the Inspecting Assistant Commissioner could exercise his jurisdiction under Section 274(2) only so long as the assessment proceeding was pending. With great respect to the learned judge, we find ourselves unable to agree.

16. In the instant case, as we are of opinion that there is no material to show that the assessee consciously concealed the particulars of its income or deliberately furnished inaccurate particulars of such income, we must hold that the Tribunal was not right in maintaining the penalty imposed by the Inspecting Assistant Commissioner. The question referred is answered in the negative.

17. The connected case, Income-tax Application No. 555 of 1968, is a reference application made by the assessee under Section 256(2) of the Income-tax Act, 1961. The assessee seeks to have two further questions referred. One of them is whether the excess of the assets over the liabilities was the assessee's income of the previous year, and the other is whether penalty under Section 271(1)(c) could be levied. The basis on which we have proceeded to answer the question referred in the reference itself assumes that both these questions are embodied in the question referred. In the circumstances, it is not necessary to call for a reference on this application and, therefore, the application must be rejected.

18. In the circumstances of the case, there is no order as to costs. Counsel's fee is assessed at Rs. 200.


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