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Basanta Mal Tilak Ram Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 3 of 1977
Judge
Reported in[1987]163ITR476(P& H)
ActsIncome Tax Act, 1961 - Sections 271(1) and 274(2); Finance Act, 1964
AppellantBasanta Mal Tilak Ram
RespondentCommissioner of Income-tax
Appellant Advocate Satish Sibal, Adv.
Respondent Advocate Ashok Bhan and; Ajay Mittal, Advs.
Excerpt:
- sections 80 (2) & 89 & punjab motor vehicles rules, 1989, rules 85 & 80: [t.s. thakur, cj, jasbir singh & surya kant, jj] appeal against orders of state or regional transport authority imitation held, a stipulation regarding the period of limitation available for invoking the remedy shall have to be strictly construed. that is because any provision by way of limitation is in the nature of a restraint on the remedy provided under the act. so viewed two inferences are clear viz., (1) sections 80 and 89 of the act read with rule 85 of the rules make it obligatory for the authorities making the order to communicate it to the applicant concerned and (2) the period of limitation for any appeal against the order is reckonable from the date of such communication of the reasons would imply..........of this court:'(1) whether, on the facts and in the circumstances of the case, the inspecting assistant commissioner (central), ludhiana, had the jurisdiction to impose the penalty under section 271(1)(c) ? (2) whether, on the facts and in the circumstances of the case, the tribunal was right in law in holding that penalty under the explanation to section 271(1)(c) was exigible in sustaining the penalty of rs. 30,600 ?' 2. the facts in brief which are relevant for answering the above questions of law proceed like this.3. firm m/s. basanta mal tilak ram, ludhiana (hereinafter called 'the asses-see') is a registered firm. it carries on business in foodgrains and other items like wheat, cotton seeds, groundnut, etc. it also deals in cast iron scraps. it filed its return of income on.....
Judgment:

D.V. Sehgal, J.

1. In this income-tax reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter called 'the Act'), the Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following questions of law for the opinion of this court:

'(1) Whether, on the facts and in the circumstances of the case, the Inspecting Assistant Commissioner (Central), Ludhiana, had the jurisdiction to impose the penalty under Section 271(1)(c) ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that penalty under the Explanation to Section 271(1)(c) was exigible in sustaining the penalty of Rs. 30,600 ?'

2. The facts in brief which are relevant for answering the above questions of law proceed like this.

3. Firm M/s. Basanta Mal Tilak Ram, Ludhiana (hereinafter called 'the asses-see') is a registered Firm. It carries on business in foodgrains and other items like wheat, cotton seeds, groundnut, etc. It also deals in cast iron scraps. It filed its return of income on September 2, 1968, for the assessment year 1968-69, previous year ending on March 31, 1968, declaring business income at Rs. 13,412 and speculation loss at Rs. 2,264. During the course of assessment proceedings, the Income-tax Officer noticed two items of credit of Rs. 15,000 each on February 3, 1968, and February 5, 1968, respectively, in the account of 'M/s. Bharat House'. The assessee was asked to explain the nature and source of the cash credits and on its request, Ranjit Singh, proprietor of M/s. Bharat House, was summoned and examined under Section 131 of the Act on November 19, 1971. According to him, both these transactions were only name-lending transactions. He further stated that the certificate issued by him confirming these amountshaving been lent by his firm to the assessee was bogus. To test the financial viability of Ranjit Singh's firm, he was asked by the Income-tax Officer to explain as to why two cheques dated July 24, 1969, on the United Commercial Bank and dated August 14, 1969, on the Lakshmi Commercial Bank Ltd. for Rs. 100 and Rs. 150, respectively had been returned by the banks. The straight reply of Ranjit Singh was that there was not sufficient funds in his account in these banks. On questions being asked by the learned counsel for the assessee, he stated that at the time of entering into the loan transactions, the assessee must have executed a pro note or hundi. He however, did not remember the duration of the hundis but admitted the discharge of both the hundis as was the practice in all bogus hundi transactions. In view of this statement, the Income-tax Officer treated the said amount of Rs. 30,000 of the two credits as the income of the assessee from undisclosed sources. The assessee had shown in his account books a sum of Rs. 600 having been paid as interest to M/s. Bharat House, which was also treated as unsubstantiated. The Income-tax Officer, Special Circle, Ward-E, Ludhiana, therefore, made an addition of Rs. 30,600 to the income returned by the assessee and made the assessment accordingly.

4. The assessee preferred an appeal before the Appellate Assistant Commissioner, which was dismissed vide his order dated February 5, 1973.

5. On a further appeal to the Income-tax Appellate Tribunal, the assessee was granted partial relief with regard to the allowance of speculation loss of Rs. 2,264, with which we are not concerned in the present proceedings. However, the addition of Rs. 30,000 as the assessee's income from undisclosed sources as also the addition of interest of Rs. 600 was confirmed by the learned Tribunal.

6. During the course of assessment proceedings, the Income-tax Officer initiated penalty proceedings against the assessee under Section 271(1)(c) of the Act. Before recording his satisfaction that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income, the Income-tax Officer referred the matter to the Inspecting Assistant Commissioner, Ludhiana Range, Ludhiana, on March 16, 1972. Before recording his prima facie satisfaction for the purpose of initiating penalty proceedings, the Inspecting Assistant Commissioner, Ludhiana Range, Ludhiana, issued a letter dated March 18, 1972 calling upon the assessee to explain as to why proceedings should not be initiated in respect of the aforesaid sum of Rs. 30,600, which represented the assessee's income from undisclosed sources. On receiving the explanation of the assessee and finding it unsatisfactory, the Inspecting Assistant Commissioner authorised the Income-tax Officer to initiate penalty proceedings under Section 271(1)(c) of the Act The Income-tax Officer, vide his notice dated March 25, 1972, informed the assessee after initiatingpenalty proceedings against it, that he had referred the matter to the Inspecting Assistant Commissioner, Ludhiana Range, Ludhiana.

7. Here it is worth mentioning that till May, 1972, there was only one Inspecting Assistant Commissioner, Ludhiana Range at Ludhiana. However, vide letter dated May 3, 1972, the Government of India, Ministry of Finance, New Delhi, conveyed the sanction of the President of India to the conversion of one of the two posts of the Appellate Assistant Commissioners, Amritsar, into that of Inspecting Assistant Commissioner (Central) with headquarters at Ludhiana. In pursuance of the aforesaid letter, the Commissioner of Income-tax, Patiala vide his letter dated 17/18th May, 1972, passed an order that a new range known as Inspecting Assistant Commissioner (Central), Ludhiana had been created at Ludhiana with effect from June 1, 1972. The Commissioner of Income-tax by another letter of the same date passed an order denning the jurisdiction of the Inspecting Assistant Commissioner, Ludhiana, and the Inspecting Assistant Commissioner (Central), Ludhiana. The Inspecting Assistant Commissioner (Central), Ludhiana, was to exercise jurisdiction over the Income-tax Officers of the Special Circles at Ludhiana A Notification was issued by the Central Board of Direct Taxes on June 27, 1972, notifying that against Sl. No. 7-A, Delhi (Central) under column 3 of the schedule appended thereto, Central Circles I and II at Ludhiana shall be deleted. It was further notified that against Sl. No. 13, Punjab, Jammu and Kashmir and Chandigarh, under column 3 of the Schedule appended thereto, the existing entry shall be substituted so as to include, inter alia, Central Circles III-VII, Ludhiana, previously known as Special Circles, Wards A-E, Ludhiana. This Notification came into force on July 1, 1972, on which date the Commissioner of Income-tax, Patiala, redesignated the Income-tax Special Circles, Ward A-E as Central Circles III-VII, respectively, and in pursuance of the Notification of the Central Board of Direct Taxes, referred to above, he amended the Schedule appended to his letter dated 17/18th May, 1972, according to which the Inspecting Assistant Commissioner of Income-tax (Central), Ludhiana, was to exercise jurisdiction over the Central Circles at Ludhiana and Amristar. This order came into force on July 1, 1972. Thus, the designation of the Income-tax Officer, Special Circle 'E' Ward, Ludhiana, who had made the assessment in the instant case and initiated the penalty proceedings was redesignated as Central Circle VII, Ludhiana, and he came under the jurisdiction of the Inspecting Assistant Commissioner (Central), 'Ludhiana. Accordingly, the Inspecting Assistant Commissioner (Central), Ludhiana, issued a notice under Section 274(2) read with Section 271(1)(c) of the Act to the assessee, who filed three letters dated February 18, 1874, March 15, 1974, and March 18, 1974, reiterating that the credits amounting to Rs. 30,000 were in respect of the loans raised by it from M/s. Bharat House and pleaded that the penalty proceedings may be dropped. The Inspecting Assistant Commissionerdid not accept the assessee's contention and held that in respect of Rs. 30,600, the assessee was guilty of concealment of income or of having furnished inaccurate particulars of such income. He further held that Explanation to Section 271(1)(c) of the Act was applicable and the assessee was deemed to have concealed the particulars of its income or to have furnished inaccurate particulars of such income. After dealing with the statement of Ranjit Singh, proprietor of M/s Bharat House, and considering the entirety of the circumstances of the case, he levied a penalty of Rs. 45,900 i.e., 100% of the concealed income.

8. The assessee preferred an appeal, before the Income-tax Appellate Tribunal wherein two points which are germane to the present reference, were raised, i.e., that the Inspecting Assistant Commissioner (Central), Ludhiana, who had passed the order imposing penalty under Section 271(1)(c) of the Act had no jurisdiction and that the Explanation to Section 271(1)(c) of the Act was not attracted to penalty proceedings. The Tribunal overruled both these objections. However, the quantum of penalty was reduced to Rs. 30,600 i.e., 100% of the income in respect of which the assessee had concealed the particulars.

9. The first question of law though not seriously canvassed before us has to be answered in the affirmative. As set out in some detail above, the Income-tax Officer, Special Circle, 'E' Ward, Ludhiana, referred the case to the Inspecting Assistant Commissioner, Ludhiana Range, Ludhiana, under Section 274(2) as at the time the Inspecting Assistant Commissioner, Ludhiana Range, Ludhiana, had the jurisdiction over the said Income-tax Officer. Later on, a new Range known as Inspecting Assistant Commissioner of Income-tax (Central), Ludhiana, was created with effect from June 1, 1972, and by two separate orders of the Commissioner of Income-tax, Patiala, dated July 1, 1972, the Special Circle, 'E' Ward, Ludhiana, was redesignated as Central Circle VII, Ludhiana, and the Inspecting Assistant Commissioner (Central), Ludhiana, was to exercise jurisdiction over all the Central Circles at Ludhiana and Amristar. The penalty proceedings were thus rightly finalised by the Inspecting Assistant Commissioner (Central), Ludhiana, who had the jurisdiction over the matter.

10. As regards question No. 2, learned counsel for the assessee has seriously disputed the applicability of the Explanation to Section 271(1)(c) of the Act to the instant proceedings. He contended that the assessee had nowhere admitted that it had concealed its income. The Income-tax Officer had also not added the amount of Rs. 30,600 as concealed income from business but as income from undisclosed sources. According to him, it was for the Revenue to establish that Rs. 30,600 was the concealed income of the assessee. To canvass this proposition, learned counsel has placed reliance on CIT v. Bhowanipur Motor Accessories Agency P. Ltd. : [1978]113ITR703(Cal) ; CIT v. Asbestos and Allied Packing Co. : [1983]144ITR109(Cal) and CIT v. Bhimji Bhanjee and Co. : [1984]146ITR145(Bom) . We, however, find that none of these judgments help the assessee. The effect of the Explanation to Section 271(1)(c) has not been discussed in any of these authorities.

11. The matter is in fact concluded by the Full Bench judgment of this court in Vishwakarma Industries v. CIT , where the true legislative intent in adding the Explanation to Section 271(1)(c) and the construction to be placed thereon has been elaborately discussed. It has been held therein that the object and intent of the Legislature in omitting the word 'deliberately' from Clause (c) of Section 271(1) of the Act and adding an Explanation thereto by the Finance Act, 1964, was to bring about a change in the existing law regarding the levy of penalty so as to shift the burden of proof from the Department on to the assessee in the class of cases where the returned income of the assessee was less than 80% of the assessed income. It is now settled by the aforesaid Full Bench decision of this court that the Legislature deleted the word 'deliberately' in order to bring it in harmony and in consonance with the intent and purpose of the Explanation added to the said section. As long as the word 'deliberately' existed in Clause (c), a conscious mental element was required to be established thereunder and inevitably the burden of proving thereof was on the Department. When the Legislature contemplated a reversal or a change in the burden of proof by the addition of the Explanation thereto, it necessarily neutralised the provisions of Clause (c) by taking out therefrom the word 'deliberately' and the consequential requirement of a designed mental element. Thus, where there is a larger concealment of income, i.e., where the returned income is less than 80% of the assessed income, the provisions of the Explanation become at once applicable with the resultant attraction of the presumption against the assessee. In the present case, the returned income was Rs 13,412 only while the assessed income included the addition of Rs. 30,600 being the income from undisclosed sources, thus reducing the returned income to far less than 80% of the assessed income. This makes the Explanation to Section 271(1)(c) fully applicable to the case of the assessee. Since on the facts found by the Tribunal, the assessee has concealed income to the tune of Rs. 30,600, the penalty under the Explanation to Section 271(1)(c) of the Act was exigible.

12. Consequently, we answer both the questions in the affirmative, i.e. in favour of the Revenue and against the assessee. No order as to costs.


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