M.C. DESAI C.J. - These are two references under section 66(1) of the Income-tax Act made by a Tribunal at the instance of the assessee, one arising out of an assessment order under section 34 and the other arising out of an order imposing a penalty under section 28. The order imposing a penalty is an order consequential to the order of assessment.
The question referred to in I.T.R No. 211 is an follows :
'Whether there was any material for the finding that the opening stock for the previous year in question was Rs. 1,63,513-13-8 and not Rs. 1,88,513-12-3 ?'
It was admitted by counsel for the assessee and the department that the figure Rs. 1,63,513-13-8 is a mistake for the figure Rs. 2,13,530-11-3. The value of the opening stock has been taken by the department and the Tribunal to be Rs. 1,88,513-12-3 and the case of the assessee was that it should be Rs. 24,999-15-0 more (and not less); the Tribunal in referring to the question, instead of adding the amount of Rs. 24,999-15-0, deducted it. There is another slight mistake also in the figures, which arises out of phonetics, and it is that the last digits of the amount of rupees should be '530' and not '513'. It appears that the Tribunal dictated the figures of Rs. 1,63,530 and Rs. 1,88,530 and the stenographer put them down as Rs. 1,63,513 and Rs. 1,88,513. We correct the mistake and read the two fingers in the question as Rs. 2,13,530-11-3 and Rs. 1,88,530-12-3 respectively.
The assessee was originally assessed on June 12, 1944, under section 23(3) on a total income of Rs. 29,168. Subsequently, it was discovered that some undisclosed income had escaped assessment and the assessment was reopened under section 34 in January, 1946, and the assessee was reassessed under section 23(4) on a total income of Rs. 1,05,305, thus subjecting to tax an additional amount of Rs. 76,137. This amount of escaped income comprised of two items of sale of cloth, (1) of cash sale of Rs. 54,458 and (2) of credit sale of Rs. 21,877. These sales were entered in the cash book but not in the ledger. The assessee is a Hindu undivided family and its karta admitted the concealment of the cash sale of Rs. 54,458; he failed to explain the other entry of the credit sale, in spite of having been afforded adequate opportunity. In the reassessment the Income-tax Officer added the amount of Rs. 76,137 to the amount of Rs. 29,168, found to be the income in the original assessment, and assessed the assessee on the aggregate of the two amounts. The assessee filed an appeal to the Appellate Assistant Commissioner from the assessment under section 34. In this appeal he not only challenged the addition of the undisclosed income but also raised, for the first time, the question of the value of the opening stock shown in its account books and accepted by the department. The opening stock consisted of several items, each valued separately; the total of the values of the items was put down as Rs. 1,38,530-12-3, but the correct total of the values of the items entered in the accounts was Rs. 2,13,530-11-3. The assessee contended before the Appellate Assistant Commissioner that the value of the opening stock was wrongly taken as Rs. 1,88,530-12-3, whereas it should have been taken as Rs. 2,13,530-11-3. The Appellate Assistant Commissioner asked the Income-tax Officer to re-total the opening stock. The Income-tax Officer re-totaled it and found that the total worked out to be Rs. 2,13,530-11-3. There was undoubtedly a mistake; the total was incorrect according to the values of the various items comprising the opening stock, but it did not necessarily follow that it was the total. The opening stock of the account year was the closing stock of the preceding year and the figures were brought over from the accounts of the preceding year. It was quite likely that in bringing over the figures from the accounts of the preceding year there crept in a mistake in putting down the value of an item or by adding an item valued at Rs. 24,999-15-0. Before the Income-tax officer could accept the correctness of Rs. 2,13,530-11-3 as the value of the opening stock he had to be satisfied that all the items of the opening stock were correctly brought over from the accounts of the preceding year and that their valves were correctly noted down. He, therefore, requested the Appellate Assistant Commissioner to call for the account books of the preceding Sambat year 1997-98 so that he could see what were the entries of the closing stock. The assessee was called upon to produce the account of the preceding Sambat year but he did not produce them, pleading that they had been lost in transit. The explanation was not believed by the Income-tax Officer and he inferred that they had been deliberately withheld. Not being satisfied that the various items of the opening stock were correctly entered in the accounts of the account year, he held that the total value of the opening stock, as given in the accounts, was not proved to be wrong. This view was upheld by the Appellate Assistant Commissioner. He advanced another ground also for rejecting the contention of the assessee that the value of the opening stock was wrongly put down at Rs. 1,88,530-12-3 and it was that it was not open to him in the reassessment to challenge the correctness of that figure which was accepted as correct in the original assessment. The income of Rs. 29,168 on which the original assessment was made was computed after taking the value of the opening stock to be Rs. 1,88,530-12-3. The Appellate Assistant Commissioner held that the assessee was bound by that figure and in the reassessment under section 34 be could not challenge its correctness. In the result he maintained the assessment order made under section 34.
The assessee preferred an appeal to the Tribunal, which upheld the Appellate Assistant Commissioners order but only on the ground that there was no mistake in putting down the value of the opening stock in the accounts. It observed that the value of the opening stock had been brought over from the accounts of the preceding year and that consequently there was no mistake. Since the accounts of the preceding year were not produced, the values of the items constituting the opening stock in the accounts of the account year. It did not go into the other question of the right of the assessee to challenge the correctness of the value of the opening stock in the reassessment proceedings.
From what we have stated it would be quite clear that there was ample material to justify the finding of the Tribunal that the value of the opening stock was Rs. 1,88,530-12-3. That was the value given in the assessees own account books. It was the assessees case that the value put down by itself was wrong and heavy onus lay upon it to prove that it was wrong. The only materials produced by it to prove that it was wrong was the values of the items comprising the opening stock put down in the account books, but, as we have pointed out, this material was not conclusive. There might have been some mistake in putting down the values of the items comprising the opening stock or some item might have been wrongly written down. The assessee had to prove that all the items did comprise the opening stock and that their values were correctly put down. Only then it could say that there was a mistake in totaling the values of the items. The Tribunal could also take into account the fact that the assessee did not challenge the correctness of the total in the original assessment proceedings when the correctness of the total in the original assessment proceedings when its account books of the preceding year were available. Had there really been a mistake in totaling the values of the items, the assessee would have been aware of the fact and would have contended in the original assessment proceedings that the total was wrong. But it did not do so and did it only when it could plead that the account books of the preceding year were lost. We must, therefore, answer the question in the affirmative.
The Tribunal did not go into the question whether it was open to the assessee to challenge the correctness of the value of the opening stock in the reassessment proceedings. It entertained the assessees contention and rejected it on merits. Therefore, no question of an assessees right to question a finding arrived at in the original assessment proceedings and which had become final (because no appeal was preferred from the original assessment order), in subsequent proceeding under section 34 for assessment of undisclosed income can be said to arise out of the Tribunals order. Though the question was argued before us we think we should refrain from answering it.
In the connected Reference No. 212, the question referred to us is :
'Whether the maximum penalty under section 28(1)(c) of the Income-tax Act could be validly imposed before the amount of income, on which the payment of income-tax and super-tax had been avoided, had been finally determined, and if not, to what extend the penalty could be imposed ?'
The Income-tax Officer imposed the maximum penalty of Rs. 60,977 under section 28(1)(c) on the concealed income of Rs. 76,137. The question raised by the assessee is of jurisdiction of the Income-tax Officer to impose the maximum penalty on the amount of the income found by him to have being concealed. The argument advanced before us was that it was not open to him to impose the maximum penalty on the amount of tax avoided according to the income found by him to have been concealed, when the amount of the concealed income was liable to be reduced on appeal by the appellate Assistant Commissioner and the Tribunal. We have no hesitation in repelling the argument. Section 28 provided that if the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or deliberately furnished inaccurate particulars of it, he or it may direct that he should pay by way of penalty, in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by him had been accepted as the correct income. It is clear from this provision that the jurisdiction to impose a penalty is acquired by the authority competent to impose a penalty upon him. There are no restrictions upon this power; it is not required after being so satisfied to wait for the result of appeals from its assessment order or to defer the imposition of a penalty for a certain time. It is to be satisfied in the course of assessment proceedings. Not only the Appellate Assistant Commissioner and the Appellate Tribunal are competent to impose a penalty but the Income-tax Officer also is competent to impose a penalty, and this provision would be inconsistent with any idea that he should impose a penalty only when his satisfaction about the concealment or deliberate furnishing of inaccurate particulars is confirmed on appeal by the Appellate Assistant Commissioner or the Appellate Tribunal. There is nothing in the section to suggest that so long as his assessment order based on the concealed income has not become final he has no jurisdiction to impose a penalty. The Appellate Assistant Commissioner and the Appellate Tribunal also have been authorized to impose a penalty, not because a penalty can be imposed by them only when there is an appeal to them but because they might have been satisfied about the concealment or deliberate furnishing of inaccurate particulars whereas the Income-tax Officer was not. The clear object behind the provision was to authorise whomsoever was satisfied to impose a penalty; if the Income-tax Officer himself was so satisfied, he had jurisdiction to impose a penalty and this jurisdiction remained in him even if there was an appeal from his assessment order to the Appellate Assistant Commissioner and then to the Appellate Tribunal. If he was so satisfied, even if his finding was maintained on appeal by the Appellate Assistant Commissioner and the Appellate Tribunal, they cannot be said to have been satisfied; they would come into the picture only if he had not been so satisfied.
Probably the emphasis laid by the assessees counsel was on the imposition of the maximum penalty even though there was a likelihood that the amount of the concealed income would be reduced on appeal by the Appellate Assistant Commissioner or the Appellate Tribunal, in which case the amount of the penalty imposed would be in excess of the maximum that can be imposed and would, therefore be illegal. The question of the legality or illegality of the penalty imposed, however, must be judged on the basis of the tax and the super-tax found by the authority, who was satisfied about the concealment or deliberate furnishing of inaccurate particulars, to have been avoided; the penalty cannot exceed one and a half times the amount of the avoided tax and super-tax as found by him. The jurisdiction to impose till his finding about the concealment or furnishing of inaccurate particulars was confirmed on appeal, it was for him to ascertain the maximum amount of penalty and naturally he could ascertain it only on the basis of the amount of tax and the super-tax found by him to have been avoided. He could not wait till a higher authority confirmed his finding about the amount of the tax and the super-tax avoided.
The argument of the assessees counsel would hit the imposition of any amount of penalty because any amount of penalty will exceed one and a half times any imaginable amount of avoided tax and super-tax. If the Income-tax officer in this case could not impose the maximum penalty on the basis of the tax and the super-tax found by him to have been avoided because it was not final and there was a chance of its being reduced on appeal, he could not impose any other amount of penalty also. Even if he imposed a penalty of Rs. 1.50 nP. it could be urged that it was illegal because if the amount of the avoided tax and super-tax was found by the Appellate Assistant Commissioner or the Appellate maximum penalty that could be imposed. In other words, the argument would be an argument against the Income-tax Officers exercising his jurisdiction at all prior to his order becoming final, but we have shown above that he has full jurisdiction to impose a penalty as soon as he makes an assessment order.
The maximum penalty imposed would become illegal only if the amount of the tax found to have been avoided is reduced on appeal, but the assessee is not left without any remedy. When he prefers an appeal from the assessment order he can also prefer an appeal from the order imposing the penalty and when in the former appeal the amount of the tax avoided is reduced, the other appeal will have to be allowed and the penalty will be reduced at least proportionately if not to a larger extent. The assessment order containing a finding about the concealment or deliberate furnishing of inaccurate particulars does not operate as res judicata in a proceeding for the imposition of a penalty; it is a relevant matter but not conclusive and it is open to the Income-tax Officer or a higher authority to find that there was no concealment or no deliberate furnishing of inaccurate particulars even if the assessment order is not appealed from or is maintained on appeal. It is open to an assessee to prefer an appeal from the order imposing a penalty upon him even if he does not prefer an appeal from an assessment order based on the finding of concealment or deliberate furnishing of inaccurate particulars. If the finding of concealment or deliberate furnishing of inaccurate particulars is set aside or modified in an appeal from the assessment order, it is all the more likely to be set aside or modified in an appeal from the order imposing a penalty and the assessee will get the necessary relief even if prefers an appeal only from it.
The situation in which an assessee finds himself is not at all different from that in which a party finds himself when he is ordered to be prosecuted for filing a false suit or for perjuring himself. There are several consequential orders which are permitted by the law to be made on the basis of principal orders even before they become final. A decree is allowed to be executed even before it becomes final and is an appeal. There is no reason why an Income-tax Officer should not be permitted to impose a penalty on his finding that there has been concealment or deliberate furnishing of inaccurate particulars.
The contention does not involve any question of interpretation of any provision of the Act. It was really based on so-called hardship but we are satisfied that there is really no hardship caused to the assessee. Even if there were any, it is not for us to remove it by judicial legislation.
In the result we answer the first limb of the question in the affirmative. The second limb does not arise and is left unanswered. The department shall get its costs, which we assess at Rs. 100 in each reference from the assessee.
Let a copy of this judgment be sent under the seal of the court and the signature of the registrar to the Appellate Tribunal as required under section 66(5).
Question answered accordingly.