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Niranjanlal Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Jaipur
Decided On
Judge
Reported in(1985)14ITD439(JP.)
AppellantNiranjanlal
Respondentincome-tax Officer
Excerpt:
.....for his individual assessment, followed diwali accounting year. of the firms from which he enjoys share income, one maintained similar accounting year, but the other two had financial year as the accounting year.2. for the assessment year 1965-66, the assessee declared his income in which he mentioned the share income from two firms and income from other sources. his share income from the third firm came to rs. 11,404 which was not disclosed at all. this in fact he mentioned during the assessment year 1966-67. his plea was that this income had been appraised to him after the close of the financial year and his individual accounting year being that of diwali, he was under a misunderstanding that the income of this firm was to be declared in the subsequent year. this plea did not prevail.....
Judgment:
1. The penalty proceedings under Section 271(1)(c), read with Section 274(2), of the Income-tax Act, 1961 ('the Act') concerning the assessment year 1965-66 arose under the following circumstances : Shri Niranjanlal, the assessee, derives income from shares of three firms in which he is a partner. He has, for his individual assessment, followed Diwali accounting year. Of the firms from which he enjoys share income, one maintained similar accounting year, but the other two had financial year as the accounting year.

2. For the assessment year 1965-66, the assessee declared his income in which he mentioned the share income from two firms and income from other sources. His share income from the third firm came to Rs. 11,404 which was not disclosed at all. This in fact he mentioned during the assessment year 1966-67. His plea was that this income had been appraised to him after the close of the financial year and his individual accounting year being that of Diwali, he was under a misunderstanding that the income of this firm was to be declared in the subsequent year. This plea did not prevail with the IAC who then imposed a penalty of Rs. 3,000. It is as such that the assessee has now come in appeal before us.

3. We have given our due consideration to all the circumstances and are of the opinion that this was a clear case for the levy of penalty. The firm of which the share income was not disclosed by the assessee was not the only one which was maintaining the financial year as the accounting year. Had it been so, some latitude could be allowed to the assessee for a misunderstanding in good faith. However, another firm in which the assessee is a partner had been similarly closing the accounts with the financial year. The assessee duly disclosed his share income from this firm during the assessment year 1965-66. Thus, he had no misunderstanding about this income. He, therefore, cannot be heard to say that he carried any misgiving that the income from the other firm need not be disclosed in this year and should be left over for the next year.

4. As regards his plea that it was he who had disclosed this income in the assessment year 1966-67, we are of the opinion that this subsequent disclosure on his part cannot eliminate the offence which he had already committed by withholding this income during the assessment year 1965-66. Penalty can be levied in cases where gross negligence is found. Such gross negligence need not involve any mala fides.

5. We, therefore, maintain the levy of penalty but direct that the same be reduced to the minimum.

1. After having given very anxious consideration to the order of my learned brother, I find myself unable to agree with his conclusions.

Before discussing the maintainability of the penalty imposed by the IAC I would briefly recount the facts of the case.

2. During the year of account the assessee derived income from interest and also share income from three firms, namely, Ratan Industrial Corpn., Sadulpur, Radheyshyam Niranjanlal, Sadulpur and Changoiwala & Co., Calcutta. A return of income was filed on 8-11-1965 but this return did not disclose the share income from Changoiwala & Co. Before the assessment was taken up, the assessee noticed the omission and voluntarily brought the omission to the notice of the ITO. It was explained that the above firm was maintaining its books of account with the financial year as its year of account whereas the assessee was maintaining his books with Diwali year as the year of account. The share income from Changoiwala and Co. for the financial year ended 31-3-1965 was recorded by the assessee in his books of account for the Diwali year relevant for the assessment year 1966-67. This was under a misapprehension that the share income from the firm also could be returned with reference to the previous year adopted by the assessee for his own business. However, when the assessee came to know that this view is not correct, he voluntarily brought the share income to the notice of the ITO and got himself assessed on that share income also.

It was further pointed out by the learned representative of the assessee that the assessee was minor till February 1964 and this is the first year of his assessment after he attained majority. Until this year his income-tax affairs were being attended to by his guardian and this being the first year when he had , to look after his own affairs, this small mistake should not have been treated as a deliberate act of concealment on the part of the assessee.

3. It is not in dispute that the share income from Changoiwala & Co.

was voluntarily disclosed by the assessee to the ITO before the assessment. Nor is it in dispute that the share income for the financial year ended 31-3-1965 was recorded in the books of account of the assessee for Diwali year relevant for the assessment year 1966-67.

It is also not in dispute that the assessee was a minor even during the part of the relevant accounting year of the assessee. With this background, it would indeed be difficult to attribute any mala fides or metis rea to the assessee when he did not originally show the share income from Changoiwala & Co. in the return of income for 1965-66. On the other hand, I would consider that there was a total absence of mala fides on the part of the assessee as he himself, when he came to notice the mistake, voluntarily informed the ITO about the mistake and got himself assessed on , the correct income including the share income from Changoiwala & Co.

4. It is now well settled that a penalty cannot be levied on a person on suspicions, surmises and conjectures. It is also well settled that penalty proceedings under the Act are in the nature of criminal proceedings and unless there are very compelling circumstances to come to the finding that the assessee has concealed particulars of income or furnished inaccurate particulars thereof or that he is guilty of fraud or gross or wilful neglect, these provisions cannot be invoked and the assessee cannot be visited with an unmerited penalty. In the instant case, the assessee has given cogent and convincing reasons for the mistake he had committed while riling the return and these explanations are also borne out by books of account regularly maintained by the assessee. In the circumstances, I am unable to agree with my learned brother that this is a fit case for levy of penalty.

1. On a difference of opinion between my learned brothers, the President is pleased to nominate me as a Third Member to resolve the said difference of opinion, which is : Whether, on the facts and in the circumstances of the case, the penalty on the assessee could be levied under Section 271(1)(c) of the Income-tax Act, 1961 2. The relevant facts are : The assessment relates to the assessment year 1965-66. The assessee had share income from two firms, called Radheshyam Niranjanlal and Ratan Industrial Corpn. He also had income from other sources. There was another firm called Changoiwala & Co., at Calcutta. The assessee also became a partner in this firm. The share income from this firm was not disclosed. The assessee was asked during the course of assessment proceedings as to why the share income from this firm was not disclosed. The reply of the assessee was that he was having Diwali year as his accounting year and the said firm, Changoiwala & Co., had the previous year as the financial year and on account of the change in the previous years and overlapping of dates the share income from the said firm could not be known by the assessee on Diwali. However, the IAC rejected his explanation to be unreasonable and unacceptable and on the ground of the assessee's concealing the particulars of his income, levied a penalty of Rs. 3,000. In coming to this conclusion, the IAC mentioned as follows : 5. I have given my careful consideration to the submissions, made by the learned counsel. There is no denying the fact that the assessee was major during the year under consideration and that the assessee did neither show himself as partner in S. Changoiwala & Co., Calcutta, in section (1) of part III of the return, nor did he show the share income from the said firm in his return. The plea of ignorance of law cannot also come to his rescue. He is an old assessee and advised by counsels of standing. I have, therefore, failed to appreciate the arguments advanced by the learned counsel.

After considering the totality of the facts and circumstances of the case, I hold that the assessee is guilty of having concealed the particulars of his income. Penal provisions of Section 271(1)(c) are, therefore, clearly attracted. The minimum penalty and the maximum penalty leviable in this case comes to Rs. 1,208 and Rs. 9,866, respectively. In the facts and circumstances of the case, I hold that a penalty of Rs. 3,000 would be reasonable and I, accordingly hereby impose the same.

3. Against this order of the IAC an appeal was filed before the Tribunal and the same contentions were repeated. The learned Judicial Member was of the opinion that the assessee had no reasonable explanation and the assessee was guilty of concealment of income. The reason that prevailed with the learned Judicial Member to hold against the assessee was contained in paragraph No. 3, which is reproduced below : We have given our due consideration to all the circumstances and are of the opinion that this was a clear case for the levy of penalty.

The firm of which the share income was not disclosed by the assessee was not the only one which was maintaining financial year as the accounting year. Had it been so, some latitude could be allowed to the assessee for a misunderstanding in good faith. However, another firm in which the assessee is a partner had been similarly closing the accounts with the financial year. The assessee duly disclosed his share income from this firm during the assessment year 1965-66.

Thus, he had no misunderstanding about this income. He, therefore, cannot be heard to say that he carried any misgiving that the income from the other firm need not be disclosed in this year and should be left over for the next year.

The learned Accountant Member was of a totally different opinion. He pointed out after recounting the facts right from the time the return was filed till the assessment came to be closed, that the disclosure of share income from the firm Changoiwala & Co. was voluntary and that in those circumstances no mala fides could be attributed to the assessee and the assessee could not have even contemplated to conceal the particulars of his income but for the genuine fact that there was a confusion regarding the year of account brought about by the change in the previous years. He cancelled the penalty. Hence, the difference of opinion.

4. After carefully considering the facts and circumstances of the case, I am of the opinion that the view expressed by the learned Accountant Member is proper and justified and should be upheld. The reason is that the assessment year involved is 1965-66. The return was filed on 8-11-1965 in which he did not show the share income from the firm of Changoiwala & Co. Before the assessment was taken up it is on record that the assessee noticed the omission and voluntarily brought the omission to the notice of the ITO. The firm of Changoiwala & Co. was maintaining its books of account with the financial year as its previous year whereas the assessee was maintaining his books with Diwali year as the year of account. The share income from Changoiwala & Co. for the financial year ended 31-3-1965 was recorded by the assessee in his books of account but Diwali year was relevant to the assessment year 1965-66. Thus, the share income got disclosed for the assessment year 1966-67 though according to law, it related to the assessment year 1965-66 and should have been disclosed for that assessment year. Having disclosed the share income for the assessment year 1966-67 the assessee could not be said to have wilfully and fraudulently concealed the disclosure of the share income for the assessment year 1965-66 except that it was due to a genuine mistake on account of the difference in the dates of the previous years. That the assessee was under a misapprehension is borne out, in my opinion, from this fact that the assessee accounted for the share income in the books relevant for the assessment year 1966-67.

5. Another factor which is noteworthy is that the assessee was a minor in February 1964 and this was the first year of assessment after he attained majority. Till he attained majority his affairs were looked after by his guardian. Even though he attained majority it is possible to conceive of the situation where the intricacies of law relating to the previous year had not been properly gauged by the assessee. In this background it is very difficult to attribute mala fides to the assessee. Now under these circumstances could it be possible to hold that the assessee was guilty of fraud or gross or wilful neglect. The assessee who has shown his share income for the assessment year 1966-67 could not be said to be fraudulent or gross or wilfully negligent. The explanation given by the assessee, the conduct when the entries made in the account books all point to the conclusion that the assessee was not guilty of concealment of income and, therefore, I am of the opinion that the view taken by the learned Accountant Member is more appropriate and justified. I am in agreement with the view expressed by the learned Accountant Member.

6. The matter will go back before the regular Bench for the disposal of the appeal in accordance with the majority of opinion.


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