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V. Damodaran Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 62 to 66 of 1970
Judge
Reported in[1974]96ITR335(Ker)
ActsIndian Income Tax Act, 1922 - Sections 18A(1), 18A(2) and 18A(9); Income Tax Act, 1961 - Sections 297(2)
AppellantV. Damodaran
RespondentCommissioner of Income-tax
Appellant Advocate Swaminathan and; C.S. Ananthakrishna Iyer, Advs.
Respondent Advocate P.A. Francis, Adv. and another
Cases ReferredKalawati Devi Harlalka v. Commissioner of Income
Excerpt:
.....facts revealed assessee deliberately estimated his income at low figures as nil or as loss in some years - assessee was paying advance tax on such basis - later when assessment came on higher amounts he paid balance tax - as such assessee had been retaining amount and using it for months - assessee knew he was giving false estimates - held, penalties properly levied under section 18a (9) (a) for relevant assessment years. - - swaminathan, on behalf of the assessee, has argued that the materials before the income-tax officer were not sufficient for him to be satisfied that the assessee furnished estimates which he knew, or had reason to believe, to be false and, therefore, the conclusion of the income-tax officer, confirmed by the appellate assistant commissioner and the tribunal,..........finally assessed and the penalties imposed for the several years :assessment yearsestimated incomeincome returnedincome finallydeterminedpenalty imposedrs.rs.rs.rs.1953-54 30,000 53,150 1,06,566 6,580 1955-56 loss 28,725 1,06,230 10,308 1956-57 15,000 29,157 95,940 19,978 1957-58 25,000 1,46,946 1,79,569 25,320 1958-59 nil 70,862 1,71,441 18,744 2. the penalty orders were impugned ; and ultimately, they were all confirmed by the income-tax appellate tribunal. and on the application of the assessee, the tribunal has referred the following common question in all these cases to us. the question is ;'whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal- was justified in law in holding that penalties were properly levied on the assessee under.....
Judgment:

Raghavan, C.J.

1. The assessee is a businessman carrying on several businesses having his head office at Trivandrum and branch offices at Kilimanoor, Madurai and Karettu. He has also been an income-tax assessee for a long time. These references relate to the five assessment years 1953-54 and 1955-56 to 1958-59. The assessee's accounting year was the Malayalam year, which ends by the middle of August every Gregorian year. The Income-tax Officer called upon the assessee during the years mentioned above to pay advance tax under Section 18A(1) of the Indian Income-tax Act of 1922. Instead of paying the demanded amounts, the assessee filed estimates under Section 18A(2) and on the basis of the said estimates paid advance tax. Ultimately, for the several years, he filed returns ; and the Income-tax Officer finally determined his incomes too. Of course, there were appeals before the Appellate Assistant Commissioner and the Appellate Tribunal, but the assessments made by the Income-tax Officer were confirmed. Thereafter, the Income-tax Officer passed penalty orders under Section 18A(9)(a) of the Act. We shall show hereinbelow in a tabular form the incomes estimated by the assessee, the incomes returned by him, the incomes finally assessed and the penalties imposed for the several years :

Assessment years

Estimated income

Income returned

Income finallydetermined

Penalty imposed

Rs.

Rs.

Rs.

Rs.

1953-54

30,000

53,150

1,06,566

6,580

1955-56

Loss

28,725

1,06,230

10,308

1956-57

15,000

29,157

95,940

19,978

1957-58

25,000

1,46,946

1,79,569

25,320

1958-59

Nil

70,862

1,71,441

18,744

2. The penalty orders were impugned ; and ultimately, they were all confirmed by the Income-tax Appellate Tribunal. And on the application of the assessee, the Tribunal has referred the following common question in all these cases to us. The question is ;

'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal- was justified in law in holding that penalties were properly levied on the assessee under Section 18A(9)(a) of the Indian Income-tax Act, 1922, for the assessment years 1953-54, 1955-56, 1956-57, 1957-58 and 1958-59 ?'

3. Mr. S. Swaminathan, on behalf of the assessee, has argued that the materials before the Income-tax Officer were not sufficient for him to be satisfied that the assessee furnished estimates which he knew, or had reason to believe, to be false and, therefore, the conclusion of the Income-tax Officer, confirmed by the Appellate Assistant Commissioner and the Tribunal, should be held to be wrong, with the result that the question referred to us should be answered in favour of the assessee. And the counsel has drawn our attention to decisions like Commissioner of Income-tax v. Anwar Ali, [1970] 76 I.T.R. 696 (S.C.). In the said decision, the Supreme Court has held that, in the absence of cogent material evidence, apart from the falsity of the assessee's explanation, from which it could be inferred that the assessee had concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the source and that the disputed amount was a revenue receipt, no penalty could be imposed. The argument of the counsel is that, in the cases before us, the only ground on which the Income-tax Officer came to the conclusion that the assessee knew, or had reason to believe, that the estimates he was giving were untrue was based on the refusal of the Income-tax Officer to accept the explanation offered by the assessee. In the decision of the Supreme Court referred to above (Anwar Ali's case), what happened was that, in making the assessment, the Income-tax Officer discovered an undisclosed bank account of the assessee in which a cash deposit of Rs. 87,000 had been made. The explanation of the assessee was that that sum represented diverse amounts entrusted to him by his relatives who had got panicky during the commual riots in Bihar in the particular year. The Income-tax Officer rejected the explanation and brought the sum of Rs. 87,000 to tax as the assessee's income from undisclosed sources, and, on that basis, a penalty of Rs. 66,000 was also imposed on the assessee. On appeal, the Tribunal held that no penalty could be imposed on the basis that the onus lay on the assessee to explain the omission to mention this amount, and pointed out that the law was that the onus lay on the revenue to show by adequate evidence that the amount concerned was really of a revenue nature and the assessee had concealed it. The Tribunal went further and held that the mere rejection of the explanation of the assessee was not sufficient to hold that he concealed the income or he submitted a false return or a return which he had reason to believe to be false. This decision was approved by the High Court and was also approved by the Supreme Court.

4. Another decision brought to our notice by Mr. Swaminathan is againof the Supreme Court, viz., Hindustan Steel Ltd. v. State of Orissa, [1972] 83 I.T.R. 26 (S.C.). Inthat decision, the Supreme Court has observed that an order imposingpenalty for failure to carry out a statutory obligation was the result of aquasi-criminal proceeding ; and that penalty would not ordinarily be imposed, unless the party obliged either acts deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of his obligation. We do not think we need enumerate the facts of the case : the statement of the principle pointed out by the Supreme Court is sufficient.

5. What we hasten to point out is that the conclusion of the Income-tax Officer in the cases before us is not based merely on the rejection of the explanation given by the assessee. We may, for a minute, revert to the decision of the Supreme Court in Anwar Ali's case itself for the principle that has to be followed in cases like these. The Supreme Court has observed in that case that it would be perfectly legitimate to say that the mere fact that the explanation of the assessee was false did not necessarily give rise to the inference that the disputed amount represented income--of course, it was a piece of good evidence ; but, before penalty could be imposed, the entirety of the 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. This, in our opinion, is the crux of the matter : this indicates that all the circumstances of the case have to be taken into consideration before the Income-tax Officer comes to a conclusion as to whether the ingredients mentioned in Section 18A(9)(a) are established.

6. With this principle in view, let us examine what the Income-tax Officer did in the cases before us. The explanations given by the assessee had been considered by the Income-tax Officer and found to be not acceptable. In all these years, the estimates were given practically at the end of the relevant years. For instance, in the first, second and fourth years, the estimates were filed in June, in the third year, the estimate was filed in July and in the last year, the estimate was filed only after the year was out, in September. Evidently, the assessee must have been in possession of sufficient materials then as to how his businesses fared during the relevant years. The assessee estimated his income for the first year at Rs. 30,000, while his income finally determined for the year was over Rupees one lakh. For the second year, the estimate of the assessee was a loss, but the income finally determined for that year was also over a lakh of rupees. Similarly, for the third and fourth years also, the disparity between the estimated incomes and the incomes finally determined were very wide. And for the last year, the estimate of the income was nil, while the income for which he was finally assessed was over one lakh of rupees. Thus, the wide disparity between the estimated incomes and the assessed incomes is a consistent feature for all the years and not a casual feature in one year. All these circumstances taken together will go to show that the assessee was deliberately estimating his income at low figures--even as nil or as loss in some years--and was paying advance tax on that basis. And months later, when the assessments came on quite higher amounts, he paid the balance tax. The reason is obvious : the assessee had been retaining the amounts and using them for months together. Therefore, it goes without saying that the assessee knew, or had at least reason to believe, that the estimates he was giving were false.

7. In this connection, our attention has been drawn by the counsel for the revenue to decisions of the Supreme Court like Karam Chand Thapar, and Bros. P. Ltd. v. Commissioner of Income-tax, [1971] 80 I.T.R. 167 (S.C.), Commissioner of Income-tax v. Greaves Cotton and Co, Ltd., [1968] 68 I.T.R. 200 (S.C.) and Commissioner of Income-tax v. Kamal Singh Rampuria, [1970] 75 I.T.R. 157 (S.C.). In these cases, the Supreme Court has made it clear that it was not permissble for the High Court to disturb the findings of fact made by the Tribunal; that the High Court was not a court of appeal in a reference under the Indian Income-tax Act; and that it was not open to the High Court in a reference to embark upon a reappraisal of the evidence and arrive at findings of fact contrary to those of the Tribunal. If the assessee has a case that the findings of fact recorded by the Tribunal were wrong, those findings of fact should be challenged by expressly raising a question regarding the validity of those findings ; and without raising such a question, the High Court has no jurisdiction to reconsider or reappraise the evidence and reverse the findings recorded by the Appellate Tribunal.

8. In the cases before us, the findings of the Income-tax Officer confirmed by the Appellate Tribunal are findings of fact based on the several circumstances in the cases as to whether the assessee knew, or had reason to believe, that the estimates he was giving were false. In this view, we are precluded from reappraising the evidence; and our jurisdiction is only to proceed on the basis of the findings recorded and submitted before us by the Appellate Tribunal. Thus, on merits, we reiterate that there is no doubt that the estimates submitted by the assessee were false to his knowledge.

9. The next argument for the 'counsel of the assessee related only to the assessments for the last two years, viz., 1957-58 and 1958-59. The argument is that, for these two years, the Act applicable is the Income-tax Act of 1961 and not the Act of 1922. Under the Act of 1922, there is no limitation for the imposition of penalty, while, under Section 275 of the Act of 1961, there is limitation. We may also point out in this connection that, by the Taxation Laws (Amendment) Act of 1970, Section 275 of the Act of 1961 has been amended and the period of limitation is also altered. We may straightaway observe that we are not directly concerned with any period of limitation in these cases : we point out these things only to bring out the difference between the Act of 1922 and the Act of 1961 on this question. The argument of Mr. Swaminathan, with which we are concerned in these cases (relating to the last two years only), is one under Section 297(2) of the Act of 1961. Clauses (f) and (g) of Section 297(2) read :

'(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed; (g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act.'

10. In all these cases, the penalties were imposed under the Act of 1922. The argument of Mr. Swaminathan is that the penalty orders for the two years mentioned above come under Clause (g) of Section 297(2) and not under Clause (f), so that the Act applicable is the Act of 1961 and not the Act of 1922. The argument is based on the following facts. The penalty orders were passed by the Income-tax Officer in all these cases on 5th May, 1966. The assessment order by the Income-tax Officer for 1957-58 was dated 15th October, 1958. The matter was taken in appeal; and ultimately, the order of the Tribunal was on 25th September, 1963. Similarly, for the year 1958-59, the assessment order was on 20th July, 1959 ; but the final order of the High Court relating to that year was on 4th June, 1965. In view of these final orders (apart from the assessment orders by the Income-tax Officer), Mr. Swaminathan has argued, the assessments in these cases were not completed before the first day of April, 1962, as contemplated by Clause (f) of Section 297(2) with the result that the imposition of penalty in these cases under the Act of 1922 was illegal.

11. In this connection, the counsel has drawn our attention to the decision of the Supreme Court in Kalawati Devi Harlalka v. Commissioner of Income-tax, [1967] 66 LT.R. 680 (S.C.). The Supreme Court was considering in that case Section 297(2)(a) which reads :

'Where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed.'

12. In considering this clause, the Supreme Court considered the expressions 'proceedings for the assessment of that person' and also 'procedure for the assessment'. And the Supreme Court has observed that the word 'assessment' can bear a very comprehensive meaning ; that it can comprehend the whole procedure for ascertaining and imposing liability upon the taxpayer ; and that there is nothing in the context of Section 297 which compels the court to give the expression 'procedure for the assessment' a narrower meaning. The Supreme Court has also observed that the expression 'proceedings for the assessment of that person' in this clause has also a very comprehensive meaning. From these Mr. Swaminathan has argued that the expression 'assessment completed' in Clause (f) of Section 297(2) can mean only the completion of the entire proceeding relating to the assessment: in other words, it has been contended that an assessment is completed only when the Tribunal passes the appellate order, or, if there is a reference to the High Court, when the High Court answers the reference. If this contention is accepted, the assessments, for the two years mentioned above were completed only after the 1st day of April, 1962.

13. But it is not possible to accept this contention on the basis of the reasoning of the Supreme Court in the decision cited by the counsel. As we have already indicated, the Supreme Court considered in that case the expression 'proceedings for the assessment' which evidently connoted the entire proceedings, whereas the expression we have to consider in Clause (f) is 'assessment completed'. It cannot be said that an assessment is completed only when the Tribunal or the High Court ultimately pronounces on its correctness : It is completed when the assessing authority completes his work and passes an order. Clause (f) of Section 297(2) deals with a case where the assessment is completed before the first day of April, 1962 ; and Clause (g) deals with a case where the assessment is completed after that date and the assessment was for the year ending 31st March, 1962, or any earlier year. Between these two clauses, all the cases of assessments completed before 1st April, 1962, and completed after 1st April, 1962, for the year ending 31st March, 1962, or any earlier year, are exhausted. In this connection, the decision of the Supreme Court in Commissioner of Income-tax v. Singh Engineering Works P. Ltd., [1970] 78 I.T.R. 90 (S.C.) may also be referred to, wherein the Supreme Court has held that Section 297(2)(g) applied.

14. Thus, on the language of clauses (f) and (g) of Section 297(2), it is not possible to hold that the assessments for the two years mentioned above were completed only after the 1st day of April, 1962. And, in that view, we hold that the Act that has to be applied for these years is also the Act of 1922.

15. Lastly, an argument has been attempted by Mr. Swaminathan that, even if the Act applicable is the Act of 1922, there has been undue delay in imposing the penalties in these cases and such long delay should not be countenanced. This is a matter which does not appear to have been raised at all till now ; and we do not also have materials before us regarding this in the statement of the case submitted by the Appellate Tribunal. The counsel for the revenue has also pointed out that the imposition of penalty was postponed at the request of the assessee. This, we may also point out, has been claimed by the counsel only for the two years, 1957-58 and 1958-59. If this claim is good (in our opinion, the answer to the question is in the negative) regarding the two years mentioned above, it may be good for the other years too. Anyhow, we have no materials before us to consider this question; nor are we requested to furnish an answer to this question regarding the two years,

16. In the result, the answer we give to the question referred to us is in the affirmative, i.e., in favour of the revenue and against the assessee. And we do not pass any order regarding costs in these cases.

17. A copy of this order will be sent to the Tribunal as required by law.


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