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Commissioner of Income-tax Vs. Sir Shadilal Sugar and General Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 53 of 1968
Judge
Reported in[1972]86ITR776(All)
ActsIncome Tax Act, 1961 - Sections 271 and 271(1)
AppellantCommissioner of Income-tax
RespondentSir Shadilal Sugar and General Mills Ltd.
Appellant AdvocateR.R. Misra, Adv.
Respondent AdvocateS.N. Verma and ;Shanti Bhushan, Advs.
Excerpt:
.....in nature, the facts necessary to attract the penal provision of section 271 of the act must be clearly proved in respect of each year. 14. in view of the partial success and failure of the parties, we are of the opinion that costs should be..........the items in respect of which additions had been made by the income-tax officer represented the assessee's income. he also made a note of the fact that the assessee did not dispute the additions. taking these facts into account, and the fact that the assessee had not included these items in its return, he held that a deliberate under-statement of income had been made by the assessee, and as such penal action was called for.7. the assessee thereafter filed an appeal before the income-tax appellate tribunal. before the appellate tribunal, the contention of the assessee was that sri kedar nath kanodia, on whose statement the inspecting assistant commissioner had based his finding in respect of items relating to the excess shortage claimed for sugarcane, and salary of outstation staff of.....
Judgment:

C.S.P. Singh, J.

1. The Income-tax Appellate Tribunal, Delhi Bench 'B', has referred three questions, two at the instance of the assessee and one at the instance of the Commissioner of Income-tax. Inasmuch as we think that question No. 3 referred at the instance of the Commissioner of Income-tax has not been correctly framed and needs refraining, it will be convenient to set out the questions referred which are as follows :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the provisions of Section 271/274 of the Income-tax Act, 1961, are applicable to the present case ?

2. Whether there is any material to warrant the finding that the assessee-company had concealed the particulars of its income or deliberately furnished inaccurate particulars thereof within the meaning of Section 271(2) of the Income-tax Act, 1961? and

3. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in reducing the penalty under Section 271(1)(c) from Rs. 70,000 to Rs. 5,000 ?'

2. The first two questions do not need any refraining. The third question does not, however, clearly bring' out the matter in dispute between the parties, and as such it is reframed as below :

'Whether, on the facts and in the circumstances, the finding of the Tribunal that the assessee had not concealed income to the extent of Rs. 67,500 and Rs. 21,700 within the meaning of Section 271(1)(c) of the Indian Income-tax Act, 1961. is correct in law?'

3. The facts necessary for the decision of the question may now be stated. The relevant assessment year is the year 1958-59. The assessee filed his return but that return was not accepted. The Income-tax Officer made certain additions and disallowed certain expenses. Of the various amounts disallowed by the Income-tax Officer, we are concerned in this reference with three items, i.e., (1) inflation in price of sugar-cane of an amount of Rs. 48,500, (2) excess shortage claimed for cane, Rs. 67,500, and (3) salary cf out-station staff of loading contractors, Rs. 21,700. The Income-tax Officer, while making the assessment, issued notice under Section 271 of the Income-tax Act, 1961. Inasmuch as the amount of penalty which was liable to be imposed on the assessee was in excess of Rs, 1,000, a subsequent notice was issued on July 2, 1964, by the Inspecting Assistant Commissioner of Income-tax, Meerut.

4. The assessee-company replied to this notice by its letter dated July 19, 1964. The Inspecting Assistant Commissioner of Income-tax in respect of the disallowance of Rs. 48,500 was, however, of the opinion that the entries in the books in respect of these purchases were suspicious. These entries were not found to have been made in regular course, as they were not entries in the handwriting of the weighment clerk who had made the other entries for the day. The assessee admitted that the entries had been made by one Sri Kishan Swarup, cane-accountant whose ordinary job was not to make entries in the lorry weighment sheets as his duties were of a supervisory nature. It was further noticed that, in respect of other despatches made from the farm, the same was to be sent by serially numbered challans and the numbers of the challans were noted in the weighment sheets. In the case of these purchases said to be made from the farm, no such challan number was entered against these entries though the mill engaged contractors' lorries for transport of cane under written agreement. The entries invariably mentioned the number of the trucks owned by the mill. These mill lorries were shown to have made some trips in quick succession, which, in the very nature of work involved, was highly improbable. In view of these circumstances, he held that the evidence indicated that the canes purchase noted against these entries were false and fictitious.

5. Considering the disallowance for shortage amounting to Rs. 67,500 the Inspecting Assistant Commissioner of Income-tax referred to the agreement which had been entered into by the assessee with its loading and unloading contractors. According to the agreement, they were to be paid at 9-1/2 pies per maund, plus 2% allowance for shortage in transist. One Sri Kedar Nath Kanodia has been examined by the Income-tax Officer on July 20, 1959, and he had stated that he did not receive payment at the rate of 9 1/2 pies per maund, nor did he get credit for the value of 2% against shortage. It was also noticed that the actual shortage was 21,143 maunds valued at Rs. 26,429 while the assessee claimed Rs. 1,34,661 for shortage at 2%. In view of these facts, the assessee accepted the addition of Rs. 67,500 under this head made by the Income-tax Officer. The Inspecting Assistant Commissioner, taking into consideration all these facts, came to the conclusion that the assessee was reducing his income by debiting false claim for excess shortage. He held, therefore, that in respect of this item the assessee was guilty of intentional concealment.

6. In respect of the third item of disallowance, relating to salary of outstation staff of loading contractors, the Inspecting Assistant Commissioner-referred to the statement of Sri Kedar Nath Kanodia, who stated that he had employed his own men at the out-centres, and there was no employee of the mill working at the centres. He stated that the payments to the staff had been made by him and that the company had made no payments. He also stated that the company's accountant had obtained signatures of the members of the staff on salary sheets and this procedure was followed in respect of the other contractors also. It appears that while making this addition of Rs. 21,700, the Income-tax Officer had investigated the claim and had found it to be false. The Inspecting Assistant Commissioner of Income-tax taking all this into account held that the assessee had made a bogus claim, and had thereby concealed income to the extent of Rs. 21,700 under this head. The Inspecting Assistant Commissioner also took into account the fact that the assessee had accepted the additions, and had not filed any appeal against the assessment order which went to show that the items in respect of which additions had been made by the Income-tax Officer represented the assessee's income. He also made a note of the fact that the assessee did not dispute the additions. Taking these facts into account, and the fact that the assessee had not included these items in its return, he held that a deliberate under-statement of income had been made by the assessee, and as such penal action was called for.

7. The assessee thereafter filed an appeal before the Income-tax Appellate Tribunal. Before the Appellate Tribunal, the contention of the assessee was that Sri Kedar Nath Kanodia, on whose statement the Inspecting Assistant Commissioner had based his finding in respect of items relating to the excess shortage claimed for sugarcane, and salary of outstation staff of loading contractors, was not a contractor employed in the relevant assessment year but was engaged in the subsequent assessment year. It was also pointed out that there were as many as 11 contractors in the relevant assessment year and the statements of these contractors, two of whom were produced by the assessee, namely, Sri Mangal Sen and Sri Avinash Chand, ran counter to the statement of Sri Kedar Nath Kanodia. In respect of the finding by the Inspecting Assistant Commissioner that inasmuch as the assessee had not filed an appeal and had accepted the additions, it was contended that the mere fact that the additions had been accepted could not lead to the inference that the assessee was guilty of concealment, and inasmuch as the proceedings were one for penalty, the onus was on the department to establish that the assessee had in fact concealed its income. The Tribunal held that the Inspecting Assistant Commissioner of Income-tax fell into error in relying upon the statement of Sri Kedar Nath Kanodia, inasmuch as he was not a contractor employed by the assessee in the year of account. It referred to the statement of one Avinash Chand, who had stated that the excess shortage of 2% had in fact occurred and further that the assessee maintained staff at the centres at which the loading contractors were working. It also noticed that Avinash Chand had gone so far as to state the particulars of the staff maintained at the centre. The Tribunal did not give a categorical finding that it had relied upon the statement of Avinash Chand. It, however, held that in view of the fact that Avinash Chand had given a statement in favour of the assessee in respect of additions of two amounts, i.e., Rs. 67,500 and Rs. 21,700, the assessee could have taken up the stand that the addition of these two amounts was unjustified. Taking this view, it held that on account of the mere fact that the assessee had agreed to the additions, did not indicate 'any criminality in its action to conceal any portion of its income'.

8. Considering the disallowance of an amount of Rs. 48,500, the Tribunal was of the view that in the past also the assessee had been inflating the price of the sugarcane and that it had agreed to similar additions in the years 1955-56 and 1956-57, to the extent Rs. 40,627 and Rs. 50,317. In view of this, it held that penalty was warranted so far as this amount is concerned, but reduced the amount to Rs. 5,000 only.

9. To begin with, we propose to answer the third question as reframed. Counsel for the department has urged that the Tribunal which was the last fact-finding authority should have considered the material taken into account by the Inspecting Assistant Commissioner before reversing the finding, and on a plain reading of the order of the Tribunal, it has omitted to do so, and as such its finding is vitiated in law. Counsel for the assessee has, however, urged that proceedings for penalty being penal in nature, the onus lay upon the department to prove that the assessee had been guilty of concealment and in the present case, sufficient material not having been produced on behalf of the department to discharge this onus, the finding of the Tribunal that there had been no concealment cannot be challenged in a reference. In this connection, reliance has been placed upon Commissioner of Income-tax v. Anwar Ali, [1970] 76 I.T.R. 696; [1971] 1 S.C.R. 446 (S.C.) a decision of the Supreme Court, where it has been held that proceedings for imposition of penalty are penal in character and it is for the department to establish that the assessee was guilty of concealing the particulars of his income and deliberately furnishing inaccurate particulars of such income. It has been further held that where there is no evidence on the. record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the assessee is liable to the imposition of penalty. Their Lordships of the Supreme Court have, however, held that in penalty proceedings the finding recorded in assessment proceedings are good evidence, although they are not conclusive. There cannot be any dispute about the proposition relied upon by the counsel for the assessee. In fact, the Supreme Court, in a recent decision in the case of Commissioner of Income-tax v. Kkoday Eswarsa & Sons, [1972] 83 I.T.R. 369 (S.C.) (Civil Appeal No. 648 of 1967 decided on 22-9-1971), has affirmed its earlier view. The question involved is, however, different. If the Tribunal had on a consideration of all the relevant material come to a conclusion that the department was unable to discharge the onus of proving that the assessee was guilty of concealment, it would have been difficult to take the view that the finding was vitiated. The omission of the Tribunal in a case to consider relevant material evidence vitiates its finding. (See Omar Salay Mohamed Suit v. Commissioner of Income-tax, [1959] 37 I.T.R. 151 (S.C.) and Udhavdas Kewalrarm v. Commissioner of Income-tax, [1967] 66 I.T.R. 462 (S.C.)). It is as such necessary to see if there hae been any such omission as would vitiate the finding that there has been no concealment. In respect of the concealment of Rs. 67,500, the Inspecting Assistant Commissioner had relied upon the statement of Sri Kedarnath Kanodia, and the fact that the actual shortage was only 21,143, maunds, valued at Rs. 26,429, while the assessee had claimed Rs. 1,34,661 as also the fact that the assessee had surrendered the amount of Rs. 67,500 after being faced with the above facts. Apart from this, he had also relied upon the circumstance that the assessee had admitted that this amount represented its income, and did not appeal against the order. The Tribunal has not at all considered the fact that the value of the shortage was only Rs. 26,429. It has also brushed aside the fact that the assessee had agreed to the addition. The Tribunal has not reversed the finding of the Inspecting Assistant Commissioner that the assessee surrendered the amount of Rs. 67,500 when it was faced with facts which clearly established the concealment. The assessee, according to the Inspecting Assistant Commissioner, had surrendered the amount only alter the Income-tax Officer had conclusive evidence in his possession that the amount represented its income. This too does not appear to have been Considered. The omission to take the facts into account has introduced a serious infirmity in the order, inasmuch as we are of the view that these facts were of material importance in deciding the question as to whether the assessee was guilty of concealment. In Ayyasami Nadar and Bros. v. Commissioner of Income-tax, (1956] 30 I.T.R. 565 (Mad.) the Madras High Court has held that, where the assessee omitted to include certain items of income in his return which were discovered by the Income-tax Officer before the assessment, and on such discovery, the assessee admits the omission and consented to the inclusion of the omitted items in his assessable income, the assessee would be liable to penalty and the mere fact that the concealment did not continue right up to the assessment would not absolve him. The position here is similar. The assessee agreed to the addition of Rs. 67,500 only on being faced with the facts from which there could possibly be no escape from the inference that the amount represented his income. We are of the view that the Tribunal was in error in brushing aside consideration of these matters while considering the question of concealment.

10. In respect of the addition of Rs. 21,700, the Inspecting Assistant Commissioner has relied upon the statement of Sri Kedar Nath Kanodia as also the fact that the assessee admitted that this item represented its income. The Tribunal did not place reliance upon the statement of Sri Kedar Nath Kanodia. It, however, omitted to take into account the fact that the assessee had admitted that these items represented its income. In the background in which the admissions have been made by the assessee, the admission to the effect that this item represented its income assumed considerable significance and was a factor which was relevant for coming to the conclusion as to whether the assessee was guilty of concealment or not. The finding of the Tribunal in respect of this amount also stands vitiated. We are, therefore, of the view that the finding that the assessee was not guilty of any concealment is incorrect in law.

11. We now come to the question No. 2. This item relates to the disallowance in respect of purchase of cane. Although the Inspecting Assistant Commissioner had given a number of reasons for holding that the assessee was guilty of concealment, the Tribunal has not adverted to any of these reasons, neither has it given a finding that it was accepting the reasons given by the Inspecting Assistant Commissioner. For holding that the assessee was guilty of concealment in respect of this amount, it took into account the conduct of the assessee in the past years, it had agreed to some additions, and penalties were levied in respect of such concealment to which the assessee did not object. The fact that the assessee had been guilty of concealment in past years cannot lead to the inference that he is guilty of concealment in the year in dispute. The past record of the assessee was not relevant for the purpose of deciding as to whether there has been such concealment as to warrant imposition of penalty. As has been seen, penalty proceedings being quasi-criminal in nature, the facts necessary to attract the penal provision of Section 271 of the Act must be clearly proved in respect of each year. No help can be taken from the past record of an earlier year, for there is no presumption that an assessee will persist in wrong doing. We are, therefore, of the view that the finding of the Tribunal in respect of the concealment of Rs. 48,500 is not justified in law. It would have been another matter in case the Tribunal had reached the conclusion of concealment by accepting the reasons given by the Inspecting Assistant Commissioner.

12. The first question has not been pressed by counsel for the assessee in view of the decision of the Supreme Court and as such we answer it against the assessee.

13. In the result, we answer the first question in the negative and in favour of the department. The second question is also answered in the negative and in favour of the assessee. The third question is answered in the affirmative and against the assessee.

14. In view of the partial success and failure of the parties, we are of the opinion that costs should be easy. Counsel's fee is assessed at Rs. 200.


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