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Chhotalal and Co. (Esso) Vs. Commissioner of Income-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax References No. 6 of 1973
Judge
Reported in[1976]104ITR500(Guj)
ActsIncome Tax Act, 1961 - Sections 271(1); Finance Act, 1965 - Sections 24(11)
AppellantChhotalal and Co. (Esso)
RespondentCommissioner of Income-tax, Gujarat
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate K.H. Kaji and; H.V. Chatrapati, Advs.
Excerpt:
.....of the view that the assessee's case was covered by the explanation to section 271(1)(c) as the income returned by the assessee was less than 80 per cent of the income assessed and, therefore, the assessee was deemed to have concealed the particulars of income and furnished inaccurate particulars thereof, as the assessee had no proof that their failure to return the correct income did not arise from any fraud or wilful neglect their part, and, therefore, he imposed a penalty of rs. he was, therefore, of the opinion that the finding of the inspecting assistant commissioner about the failure of the assessee to return correct profit arose from gross or wilful neglect on the part of the assessee must be confirmed, as the assessee had full knowledge that the interest of rs. its failure to..........of the view that the assessee's case was covered by the explanation to section 271(1)(c) as the income returned by the assessee was less than 80 per cent of the income assessed and, therefore, the assessee was deemed to have concealed the particulars of income and furnished inaccurate particulars thereof, as the assessee had no proof that their failure to return the correct income did not arise from any fraud or wilful neglect their part, and, therefore, he imposed a penalty of rs. 5,000. the assessee, therefore, took the matter in appeal before the tribunal. 8. the learned accountant member of the tribunal who made a leading order observed that there was no manner of doubt that there was an attempt at concealment by the assessee by claiming debits which the assessee knew were not.....
Judgment:

B.K. Mehta J.

1. Shortly stated, the facts leading to this reference are as under

2. The assessee filed a return of income for the year 1964-65 on March 6, 1965, declaring a total income of Rs. 39,730. It appears before the assessment order was actually passed, the assessee filed on March 25, 1965, a disclosure-petition under section 24(11) of the Finance (No. 2) Act of 1965 addressed to the Commissioner of Income-tax making the following disclosurd :

3. Rs. 15,000 being the amount of accommodating hundies used in the business in S.Y. 2018.

4. Rs. 50,000 being the amount of accommodating hundies used in the business in S.Y. 2019.

5. These two amounts related to the respective assessments for the years 1963-64 and 1964-65, as the accounting of the assessee for the assessment year 19664-65 was S.Y. 2019.

6. The Income-tax Officer passed the assessment order on July 7, 1967, on the total income of Rs. 53,591. The Income-tax Officer while so assessing added the amount of Rs. 10,231 being the amount of interest on bogus hundi loans. In the course of the assessment proceedings, the Income-tax Officer observed that the assessee was liable to pay penalty under section 271(1)(c) of the Income-tax Act, 1961, for concealment of income and/or furnishing inaccurate particulars thereof.

7. The matter of penalty was referred to the Inspecting Assistant Commissioner as the minimum penalty leviable exceeded Rs. 1,000. The Inspecting Assistant Commissioner by his order of July 3, 1969, imposed a penalty of Rs. 5,000. While rejecting the contention of the assessee that as they had made a disclosure-petition under section 24(11) of the aforesaid Act, no penalty could be imposed, the Inspecting Assistant Commissioner observed that though the assessee had disclosed the hundi loans, the assessee did not withdraw their claim for interest on such loans, and if the hundi loans represented the assessee's own money, interest could not have been claimed as a deduction and the assessee-firm should have filed a revised return. In the opinion of the Inspecting Assistant Commissioner, the assessee's failure to file such a revised return amounted to furnishing of inaccurate particulars of income which exposed the assessee to penalty under section 271(1)(c) . The Inspecting Assistant Commissioner was also of the view that the assessee's case was covered by the Explanation to section 271(1)(c) as the income returned by the assessee was less than 80 per cent of the income assessed and, therefore, the assessee was deemed to have concealed the particulars of income and furnished inaccurate particulars thereof, as the assessee had no proof that their failure to return the correct income did not arise from any fraud or wilful neglect their part, and, therefore, he imposed a penalty of Rs. 5,000. The assessee, therefore, took the matter in appeal before the Tribunal.

8. The learned Accountant Member of the Tribunal who made a leading order observed that there was no manner of doubt that there was an attempt at concealment by the assessee by claiming debits which the assessee knew were not genuine. He was, therefore, of the opinion that the finding of the Inspecting Assistant Commissioner about the failure of the assessee to return correct profit arose from gross or wilful neglect on the part of the assessee must be confirmed, as the assessee had full knowledge that the interest of Rs. 10,231 which was claimed as a deduction was interest paid by the assessee to themselves for their own funds and so it was incumbent on the assessee to add this amount to return the correct income. The learned Accountant Member, therefore, found that the assessee came within the mischief of the Explanation to section 271(1)(c) of the Income-tax Act.

9. The learned Judicial Member, however, could not persuade himself to agree with the learned Accountant Member that there was any necessity to record any finding as to the concealment by the assessee and, therefore, he did not express any opining on the point. However, he agreed with the learned Accountant Member that imposition of penalty by the Inspecting Assistant Commissioner was justified, inasmuch as gross or wilful neglect must be presumed to be existing in the present case section 24(11) of the Finance (No. 2) Act of 1965, which contained an admission that certain hundi loans were not genuine borrowings but income of the assessee initially. In effect, therefore, the Tribunal confirmed the order of the Inspecting Assistant Commissioner levying penalty on slightly different reasoning. As the instance of the assessee, therefore, the Tribunal referred the following question to this court for our opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal has erred in law in relying on the disclosure made by the assessee under sub-section (11) of section 24 of the Finance (No. 2) Act, 1965, in holding that the assessee committed gross or wilful neglect within the meaning of the Explanation to section 271(1)(c) ?'

10. In order to appreciate the question which has been referred to us in its proper perspective, it may be necessary to consider how and in what circumstances the disclosure came to be made by the assessee. It appears that the assessee on March 25, 1965, made a petition of settlement before the Inspecting Assistant Commissioner of Income-tax, Rajkot Range, Rajkot. The subject of the petition has been described as one regarding disclosure and settlement petition of M/s. Chhotalal & Co., Morvi, for hundies. It has been stated in the said petition that the firm had raised loans from Shroffs of Bombay from S.Y. 2017 to S.Y. 2019, most of which were through banks. However, at the time of assessment for the assessment year 1962-63, as the Income-tax Officer assessing the firm raised some doubt as to the genuineness of loans, the assessee did not think fit to contest the same and co-operates with the department, 'in spite of the fact that the loans raised on hundies and collected through banks were accepted by the Tribunal at Bombay as late as September, 1964'. The assessee, therefore, 'without prejudice to the merits and in order to avert long and protracted litigation and to carry on business peacefully', thought it prudent to settle the matter and therefore and, therefore, they submitted by the said petition settlement of hundies which the assessee anticipateed that the Commissioner would consider sympathetically. It was further stated in the petition that the peak hundies utilised in the business fell in Samvat year 2019 and they amounted to Rs. 1,05,000. These hundies, according to the petition, were being raised from S.Y. 2017 and as Rs. 40,000 worth hundies had already being raised from S.Y. 2017 and as Rs. 40,000 worth hundies had already been subject to tax in S.Y. 2017, there remained the hundies of Rs. 15,000 in S.Y. 2018. These aggregate hundies of Rs 55,000, if allowed to be set off against the peak hundies amount of Rs. 1,05,000, it would leave a balance of Rs. 50,000 which had been used in S.Y. 2019. It was, therefore, submitted in the petition that if these amounts of hundies are considered as an income, the assessee may be allowed to spread over Rs. 65,000 (Rs. 15,000 + Rs. 50,000). In the last paragraph of the petition, it was stated that this was a voluntary disclosure and, therefore, it was prayed that the same may be considered without any penalty.

11. It appears that though the order of the Income-tax Officer has not been placed on the record of this reference, the Income-tax Officer had accepted the proposal of so read-over of Rs. 65,000 over two year for the assessment years 1963-64 and 1964-65. However, the assessee by his latter of March 30, 1966, informed the Income-tax Officer, Morvi Circle, Morvi, that the assessee instead of spread-over proposal was opting for disclosure under the scheme as envisaged under section 24 of the Finance (No. 2) Act of 19665. The assessee further stated in the said letter of March 30, 1966, that they were all throughout under the impression that four spread-overs had been given and on that basis they had paid tax in the preceding years. The change-over from four spread-over was unexpected and, therefore, the assessee stated in the said letter 'we are resorting to the aforesaid scheme which is to obviate the question of spread-over.' It is thereafter that the assessment was made by the Income-tax Officer in the course of which he found that the assessee-firm was liable to pay penalty as in the return made by them for the assessment year 1964-65, they claimed a deduction of the amount of Rs. 10,231 as interest on the hundi loans which were admittedly the income of the assessee-firm. He, therefore, referred the matter to the Inspecting Assistant Commissioner, Income-tax, Rajkot Range, Rajkot, who after considering the explanation of the assessee while passing the order imposing penalty observed as under :

'It is a fact that the assessee made a disclosure on March 25,1965, of hundi loans appearing in its books of account. As per this disclosure the assessee admitted that the hundi loans in its books of account were not genuine and that they represented its own money. The assessee, however, did not withdraw its claim for interest on such hundi loans. If the hundi loans represented the assessee's own money, interest paid on such hundi loans should not have been claimed as a deduction from business income and a revised return of total income should have been filed after March 25, 1965. The assessee, however, did not file a revised return of total income adding back the interest income of Rs. 10,231 claimed as a deduction in the return of total income filed on March 6, 1965. The assessee thus suppressed this fact from the Income-tax Officer. Its failure to file a revised return of total income for the year under consideration or to inform the Income-tax Officer about the true state of affairs would amount to furnishing incorrect particulars of income within the meaning of section 271(1)(c) of the Income-tax Act. The assessee's case is also covered by the Explanation to section 271(1)(c), income returned by the assessee being less than 80% of the assessed income...'

12. The learned Accountant Member of the Tribunal in his order confirming the finding of the Inspecting Assistant Commissioner observed as under :

'... On the facts of the case there can be no manner of doubt that there was an attempt at concealment of income by the assessee by claiming debits which the assessee knew were not genuine.'

13. However, the learned Accountant Member did not uphold the view of the Inspecting Assistant Commissioner that there was any obligation to file a revised return showing the true state of affairs and that amounted to furnishing of incorrect particulars of income within the meaning of section 271(1)(c) . In the circumstances, therefore, he did not uphold the order of the Inspecting Assistant Commissioner penalising the assessee for failure to file a revised return. The learned Accountant Member, however, on another ground upheld the order of the Inspecting Assistant Commissioner that the assessee came within the purview of the Explanation to section 271(1)(c) . In the opinion of the learned Accountant Member, the assessee would come under the Explanation to section 271(1)(c) unless it could be shown that the failure to return correct income did not arise from any fraud or gross or wilful neglect on the part of the assessee. The learned Accountant Member, therefore, justified the finding of the Inspecting Assistant Commissioner to levy of penalty on the ground that the failure of the assessee to return correct profit by claiming a deduction of the interest amount on admitted bogus hundi loans arose from gross or wilful neglect on the part of the assessee when he filed the return with full knowledge that the interest of Rs. 10,231 was interest amount paid by the assessee to himself on his own funds. In the opinion of the learned Accountant Member, the assessee for purposes of returning the correct income ought to have added back this amount. The failure on the part of the assessee to return the correct income was thus occasioned by gross or wilful neglect on the part of the assessee, and it was that neglect which was responsible to show the income at a figure less than 80% of the income assessed. The learned Accountant Member, therefore, held that the omission of the assessee was within the Explanation to section 271(1)(c) . The learned judicial Member, however, did not think it necessary to make any funding on the question of concealment. He, however, agreed with the learned Accountant Member on his finding that the failure to make a correct return of income was occasioned by gross or wilful neglect on the part of the assessee and that neglect was responsible to show the income at a figure less than 80% of the income assessed, which rendered the assessee liable to penalty under section 271(1)(c) .

14. At the time of hearing of this reference, Mr. K. C. Patel, the learned advocate, appearing on behalf of the assessee, urged that the Tribunal was not justified in considering the declaration in view of the prohibition contained in section 24(11) of the Finance (No. 2) Act of 1965. In any case, it was urged by Mr. Patel that this declaration ought not to have been looked into isolation and the Tribunal was in error in not considering the correspondence which constituted the background of the declaration ultimately made under the aforesaid Finance Act of 1965. In this connection Mr. Pastel drew our attention to the aforesaid two letters of March 25, 1965, and March 30, 1966, where the assessee has made a proposal for spread-over without prejudice to his contention as to the genuineness of the loan amount. It was strenuously urged by Mr. Patel that the Inspecting Assistance Commissioner was clearly in error in relying on the letter of March 25, 1965, which, as stated above, was without prejudice to his contention about the genuineness of the loan amount. According to Mr. Patel, the Tribunal substituted a different ground and relied on more declaration which the tribunal was, according to Mr. Patel, not justified in doing.

15. In order to answer the question which has been referred to us, it would be useful to refer to the prohibition contained in section 24(11) of the Finance (No. 2) Act of 1965 and in which circumstances it operates, Section 24(11) provides as under :

'24(11). Voluntary disclosure of income. - Notwithstanding anything contained hereinabove or in any other law for the time being in force, nothing contained in any declaration made under this section shall be admissible as evidence against the declarant for the purpose of any assessment proceeding or any proceeding relating to imposition of penalty or for the purpose of prosecution under any of the Acts mentioned in sub-section (9) or the Wealth-tax Act, 1957 (XXVII of 1957), in respect of any amount specified in an order made by the Commissioner under sub-section (4) or, if such amount is altered by an order of the Board under sub-section (6) then, such altered amount.'

16. According to Mr. Patel, nothing contained in any declaration made under section 24(11) can be admissible as evidence against the declarant either for purposes of any assessment proceeding or any proceeding relating to imposition of penalty and in his submission, therefore, the Tribunal was in error in admitting in evidence the contents of the declaration for purposes of finding that the failure to make correct return by claiming deduction of the finding that the failure to make correct return by claiming deduction of the interest amount on hundi loans was occasioned by gross or wilful neglect of the assessee. The admission which has been taken into consideration by the Tribunal from the declaration under section 24 of the Finance (No. 2) Act of 1965 made by the assessee is from columns (x) and (xi) of the said declaration. Column (x) deals with year-wise disclosed income and column (xi) deals with particulars of disclosed income. In column (x), the declarant has given the details of the two amounts, namely, Rs. 15,000 and Rs. 50,000 as amounts of accommodating hundis used in business in S.Ys. 2018 and 2019, respectively. In column (xi) relating to particulars of disclosed income, the assessee stated against item No.(1) of column (xi) that it was investment by way accommodating hundies in the business of the firm itself. Mr. Patel, therefore, urged that the Tribunal was, so far it relied on this so-called admission, in the first instance, clearly acting beyond section 24(11) of the Finance (No. 2) Act of 1965. In raising this contention Mr. Patel, in our view, has lost sight of the fact that what has been prohibited from being considered in evidence is anything contained in a declaration in respect in evidence is anything contained in a declaration in respect of any amount specified in an order made by the Commissioner under sub-section (4) or, if such amount is altered by an order of the Board under sub-section (6), then, such altered amount. In our opinion, the prohibition contained in section 24(11) operates only in respect of any amount specified in an order made by the Commissioner under sub-section (4) or by the Board under sub-section (6), if such amount is altered. Now, the amount referred to in sub-section (4) or (6) is that amount which has been debited by the Income-tax Officer before its declaration by the assessee and regarding which the Commissioner is satisfied within the prescribed time. The prohibition contained in section 24(11), therefore, could not operate in respect of any amount other than such debited amount or in respect of any other default for which penalty is sought to be levied. The Tribunal here considered the statement made in the declaration by the assessee for purposes of finding out whether the assessee was genuinely claiming the amount of interest which is debited on the amount of hundi loans, and for determining the question whether there was a genuine claim made by the assessee. In our opinion, therefore, when the Tribunal was considering the contents of the declaration, it was doing so for purposes other than those for which the prohibition has been made by section 24(11) of the Finance (No. 2) Act, 1965. Mr. Patel, therefore, attempted to persuade us that the Tribunal has considered this declaration in isolation, which it was not entitled to do and it ought to have borne in mind the previous correspondence which constituted the background of this disclosure. In that connection, Mr. Patel has drawn our attention to the two letters of March 25, 1965, and March 30, 1966, where according to Mr. Patel, the proposal was made by the assessee without prejudice to his contention about the genuineness of the loan amount. On reading these letters, we are afraid, we cannot agree with Mr. Patel for the simple reason that by the letter of March 30, 1966, the assessee, instead of their formal proposal for settlement by spreading over the disclosed amount of Rs. 65,000 over a period of four years, opted for the scheme envisaged under section 24 of the Finance (No. 2) Act, 1965, as it would obviate the question of spread-over altogether. It may be that the assessee was induced to opt for this scheme under section 24 of the Finance (No. 2) Act, 1965, because the Income-tax Officer did not agree to the original proposal for settlement for spread-over of the period of your years and instead granted spread-over of the period of two years. None-the-less the fact remains that by letter of March 30, 1966, the assessee opted for the disclosure of income by making a declaration under the scheme as prescribed under section 24 of the Finance (No. 2) Act of 1965. Mr. Patil laid great emphasis on the fact that this letter of March 30, 1966, was in continuation of the previous letter of March 25, 1965, and therefore, both the letters should be read together and the statement made in the declaration under section 24 should not be viewed in isolation. This submission of Mr. Patel is based on a stray statement made in the letter of March 30, 1966, where the assessee referred to his previous petition of settlement of March 25, 1965. But as stated above by us, ultimately the assessee, when they came to know that the Income-tax Officer has granted spread-over only of two years, thought fit to opt for the disclosure scheme as envisaged under section 24. The option so sought to be exercised by the assessee cannot be lost sight of when we are considering whether the Tribunal was right in relying upon the statement made in the declaration under section 24 of the Finance (No. 2) Act of 1965. Mr. Patel, therefore, submitted that the Tribunal has based its order of penalty on the ground which has not been considered by the Inspecting Assistant Commissioner at all. We did on not think that Mr. Patel is justified in making this submission. The Inspecting Assistant Commissioner has considered the satement made in the declaration as to the nature of the amount of loans by the assessee in their business. However, in the opinion of the Inspecting Assistant Commissioner, the assessee ought to have filed a revised return, which view did not appeal to the Tribunal. The Inspecting Assistant Commissioner also held that the assessee came within the mischief of the Explanation to section 271(1)(c) when the income returned by the assessee was found to be less than 80 per cent of the assessed income. The Tribunal justified the order of penalty not altogether on a different ground but on slightly different reasoning. The Tribunal relied on another piece of evidence, namely, the statement contained in the declaration for purposes of holding that the failure of the assessee to make a correct return arose out of the gross neglect on the part of the assessee when the assessee claimed a deduction of the interest amount on the loans which were admittedly bogus loans. It, therefore, cannot be said that the Tribunal for the first time imposed penalty on a new ground. In that view of the matter, therefore, we do not think that the Tribunal was in error in considering the contents of the declaration for purposes of holding that the assessee committed gross or wilful neglect within the meaning of the Explanation to section 271(1)(c) .

17. The result is, therefore, that we answer the reference accordingly that, on the facts and in the circumstances of the case, the Tribunal was right in relying on the disclosure made by the assessee for purposes of holding that the assessee committed gross or wilful neglect within the meaning of the Explanation to section 271(1)(c) and there was no bar of section 24(11) of the Finance (No. 2) Act, 1965, to such consideration.

18. The reference is answered accordingly in the negative and against the assessee. The assessee shall pay costs to the Commissioner.


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