BERI C.J., - At the instance of the assessee this court by its order dated December 26, 1966, directed the Income-tax Appellate Tribunal, Delhi Bench 'C', to refer the following question for answer :
'Whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 2,500 on the assessee under section 18A(9) read with section 28(1)(c) of the Act was valid in law?'
M/s. Jaipur Metals and Electricals Ltd. is a public limited company which manufactures electric meters, copper conductors, etc. The assessees accounting year ends on 31st December. For the period relevant to the assessment year 1957-58, a notice was served on the assessee on May 31, 1956, indicating that the assessee was liable to pay income-tax in the sum of Rs. 48,639.20 under section 18A(1). The assessee filed an estimate on June 12, 1956, showing a loss in the sum of Rs. 50,000 till that date. On September 13 or 14, 1956, the assessee voluntarily revised its estimates showing an estimated income in the sum of Rs. 50,000. The department issued another notice to the assessee on December 1, 1956, making a revised demand upon the assessee to pay an advance tax in the sum of Rs. 1,03,458.75 on an estimated income of Rs. 3,03,565 based on the total income assessed for the accounting period relevant to the assessment year 1956-57. The assessee repeated its estimated income by its revised statement dated December 14, 1956, to be at Rs. 50,000. This estimate was filed by the assessee, it is claimed, on the basis of the books of account and material than available to the assessee. The assessee revised certain bills already submitted by it to the Government departments which resulted in increasing its profits by Rs. 27,755. These bills were revised some time after December 25, 1956. Not only that the assessee received a sum of Rs. 12,463 on December 20, 1956, from M/s. Rathi Steel Re-rolling Mills, Delhi, being some pool money on transfer of the steel quota. This brought in an unexpected profit in the sum of Rs. 40,000 and odd. The assessment of the company was completed on August 31, 1960, and the Income-tax Officer adjudicated the income of the assessee in the sum of Rs. 2,09,968 as against the return of the assessee in the sum of Rs. 84,220. An appeal was taken before the Appellate Assistant Commissioner and the income was reduced to Rs. 97,478. A notice was issued to the assessee under section 28 (1)(c) read with section 18A (9) to show cause why penalty should not be imposed. The assessee filed a reply that he was not guilty of making any untrue statement within its knowledge or which it had reason to believe to be untrue. The Income-tax Officer, however, imposed a penalty on December 27, 1963, in the sum of Rs. 3,800. The Appellate Assistant Commissioner, However, dismissed the appeal but the tribunal eventually on March 2, 1965, reduced the amount to Rs. 2,500. An application was made to the tribunal for making a reference to this court under section 66 (1) of the Indian Income-tax Act, 1922 (hereinafter called 'the old Act'), but the Tribunal rejected it on the ground that no question of law arose. As already indicated this court directed the Tribunal to refer the question aforesaid.
Mr. L. R. Mehta, appearing for the assessee, urged that when he filed the revised statement on September 13, 1956, and repeated it on December 14, 1956, in the sum of Rs. 50,000, it made no untrue statement within its knowledge or which it had reason to believe to be untrue. The unexpected increase in the income was after the filing of the revised return on December 14, 1956, and, therefore, the assessee was not hit by the mischief of section 18A(9) read with section 28(1)(c) of the old Act. The failure on the part of the assessee to revise its estimate of the 15th of March, 1957 is at worst an omission while the penalty clause of section 18A (9) read with section 28 (1)(c) refers to a positively untrue statement within the knowledge or which the assessee had reason to believe to be untrue. The Tribunal fell into an error, urged the counsel, when it took into consideration the failure on the part of the assessee to file the revised estimate on March 15, 1957, and this being an extraneous consideration has vitiated his conclusion. He placed reliance on United Asian Traders Ltd. v. Commissioner of Income-tax P. V. Kurian v. Income-tax Officer Ernakulam and P. Arunachala Mudaliar v. Commissioner of Income-tax. His further submission was that falsity of the explanation of the assessee was not enough to reach a conclusion of mens rea and he placed reliance on Commissioner of Income-tax v. Anwar Ali. This, he urged, was a relevant consideration because the provisions of section 28 are of a penal nature.
Mr. S. K. Mal Lodha, learned counsel for the revenue, urged that the estimate is for the year and not for any quarter, and if a person failed to file a revised estimate under section 18A (2) then he was guilty of furnishing particulars which were untrue to his knowledge or at least which he had reason to believe to be untrue as proved in the circumstances of the case. He further urged that the assessee was in duty bound to file a revised estimate on the 15th March, 1957, in view of the provisions of section 18A (2) and the proviso thereto. He placed reliance on Commissioner of Income-tax v. S. Teja Singh, North Deccan Transport Ltd. v. Commissioner of Income-tax, N. V. N. Nagappa Chettiar v. Income-tax Officer, Pudukottai, and Appavoo Pillai v. Commissioner of Income-tax. His next submission was that if the assessee had made no grievance with regard to certain grounds at the time of the drawing up of the statement of the case he could not agitate them now. He placed reliance on India Cements Ltd. v. Commissioner of Income-tax Commissioner of Income-tax v. Sree Meenakshi Mills Ltd. and Commissioner of Income-tax v. Kamal Singh Rampuria. His another submission was that the tribunals findings of fact are final and the High Court should not travel outside those findings. He placed reliance on Karnani Properties Ltd. v. Commissioner of Income-tax and Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax And lastly, he urged that it was a case where the estimate was untrue within the knowledge or within the belief of the assessee and it was a question of fact as decided by this court in Addl. Commissioner of Income-tax v. Noor Mohd. & Co. (D.B.I.T. Case No. 142/72) decided on 24-4-1973. If a person files an erroneous statement and does not revise it until the last opportunity provided by the law then it should be presumed that it was not true and he placed reliance on Abdul Kassam v. Commissioner of Income-tax.
We would like to examine at the outset the last argument submitted by Mr. Lodha that no question of law arises because the estimate of tax payable by an assessee 'which he knew or had reason to believe to be untrue' is a question of fact. It has been repeatedly laid down by the Supreme Court that the High Court must accept the findings of fact reached by the Appellate Tribunal and it cannot disturb those findings of fact unless the party concerned has expressly raised the question of the validity of the findings of fact before the Tribunal notwithstanding the fact that the findings may be vitiated for any reason. The question which the High Court formulated in the case was whether the levy of penalty was valid in view of the provisions of section 18A (9) read with section 28(8)(c) of the old Act. A reference to section 18A (9) would show that if the Income-tax Officer in the course of any proceedings in connection with the regular assessment is satisfied that any assessee has furnished under sub-section (2) the estimates of the tax payable by him which he knew or had reason to believe to be untrue he shall be deemed to have deliberately furnished inaccurate particulars of his income within the meaning of section 28(1)(c) of the Act. The Tribunal has found that the Income-tax Officer made a revised demand requiring the appellant to pay by way of tax the sum of Rs. 1,03,458.75. The appellant filed a revised estimate on September 13, 1956, showing an income of Rs. 50,000 and paid tax in the sum of Rs. 23,000. The estimate of the income was repeated on December 14, 1956. Thereafter no revised estimate was submitted by the assessee. The assessment was completed on August 31, 1960, and the total income was determined at Rs. 2,09,968 as against the income of Rs. 84,220 shown by the assessee. The explanation offered by the assessee was that certain bills were revised in the month of December, 1956, and as a result of this he had received a profit of Rs. 40,218 and, therefore, it had not made an incorrect estimate on September 13, 1956. The Tribunal observed that 'it may be correct up to some extent but the appellant knew the correct position on 31st December, 1956, and so he could revise his estimate with some extent of accuracy on 15th March, 1957, which he had not cared to do. This clearly shows that the appellant never intended to pay tax on correct basis.' The question is whether in these circumstances the provisions of section 18A (9) read with section 28(1)(c) of the Act were attracted. Their Lordships of the Supreme Court in Sree Meenakshi Mills case laid down that when the point for determination is a pure question of law such as construction of a statute the decision of the Tribunal is open to reference to the court under section 66(1). The question in essence is whether on the facts found the provisions of law are attracted. In any event when the point for determination is a mixed question of law and fact treating the findings of fact by the Tribunal as final its decision as to the legal effect of those findings is a question of law which can be reviewed by the court. Questions such as the one before us have been considered and decided in the United Asian Traders case. In P. Arunachala Mudaliars case of the Madras High Court a similar question arose and was answered whether the assessees failure to submit a revised return in March, 1953, was a relevant consideration as the mens rea of the assessee at the time when he made the estimate could not be adjudged by his subsequent conduct. We, therefore, find that the question raised before us is a question of law and at any rate a mixed question of law and fact and can be referred under section 256 (2) of the Income-tax Act, 1961.
Let us now examine whether, in the circumstances of the case, the penalty imposed on the assessee under section 18A (9) read with section 28(1)(c) was valid in law. The relevant provisions of the law may be quoted in the interest of exactitued :
'18A. (9) If the Income-tax Officer, in the course of any proceedings in connection with the regular assessment, is satisfied that any assessee -
(a) has furnished under sub-section (2) or sub-section (3) estimates of the tax payable by him which he knew or had reason to believe to be untrue, or
(b) has without reasonable cause failed to comply with the provisions of sub-section (3),
the assessee shall be deemed, in the case referred to in clause (a), tp have deliberately furnished inaccurate particulars of his income, and in the case referred to in clause (b), to have failed to furnish the return of his total income; and the provisions of section 28, so far as may be, shall apply accordingly.........'
Section 28(1)(c) reads :
'28. Penalty for concealment of income or improper distribution of profits. - (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person -......
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income,
he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income-tax and super-tax, if any, payable by him, a sum not exceeding one and a half times that amount, and in the cases referred to in clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.....'
While examining the provisions of section 28(1)(c) of the Act the honble judges of the Supreme Court in Anwar Alis case have made the following observations :
'But one of the principal objects in enacting section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest.'
They have further observed in paragraph 6 :
'Before penalty can be imposed the entirety of 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.'
The assessee in the case before us had furnished particulars estimating its income at Rs. 50,000 on September 13, 1956. Thereafter on the 14th December, 1956, it repeated its estimate at Rs. 50,000. It is not in dispute that the income of the assessee was finally settled at Rs. 97,470. It is also not controverted and in fact the Tribunal has observed that it is correct to some extent that the assessee received Rs. 40,218 in the month of December from some unexpected sources, but the Tribunal says that the assessee knew the correct position on 31st December, 1956, and so he could revise his estimates with some accuracy by filing a revised estimate on 15th March, 1957. While submitting its statement of case the tribunal has used very significant language when it observed, 'the sequence of events establish that the estimate filed on the 13th of September, 1956, ceased to be an honest estimate'. The Tribunal accordingly held that the penalty under section 18A (9) was attracted.
The question which emerges for our consideration is : What is the point of time when the assessee should know that the estimate furnished by him is untrue or he has reason to believe it to be untrue? In our opinion the knowledge that the estimate is untrue or which the assessee believes to be untrue must be at the point of time when he submits the estimate. According to the provisions of section 18A (9) if the assessee knowingly submits an untrue estimate he is deemed to have deliberately furnished inaccurate particulars. The knowledge or reason to believe that the estimate is untrue must be contemporaneous with the furnishing of the estimate. It does not appear to be the intention of the law that if an estimate of income is submitted honestly and if it turns out to be incorrect due to some unexpected income later, the estimate originally honest becomes dishonest and the assessee should be penalised. The grammatical construction of section 18A (9) clearly supports this interpretation. The important condition to which their Lordships of the Supreme Court referred in the judgment quoted above is the consciousness on the part of the assessee at the time of the furnishing of the estimate which is material for attracting the penal provisions. Consciousness is a state of mind which must be correlated to the state of affairs at a given point of time, viz., when the estimate of income is submitted. In our opinion the legislature did not intend to levy penalty on those who lacked the capacity of correct anticipation. The truth or otherwise of an estimate at a given point of time is the gravamen of the charge in a proceeding under section 28(1)(c). And, therefore, in our view the learned Members of the Tribunal were in error when they observed that the estimate given on the 13th September, 1956, and repeated on the 14th December, 1956, 'ceased to be an honest' estimate by subsequent events and, therefore, the provisions of section 28(1)(c) were attracted. It would be punishing an assessee for its incapacity to predict. The learned Members have themselves accepted that the unexpected income, which made a substantial addition of Rs. 40,218, came in the latter part of December, 1956. The assessee had estimated his income at Rs. 50,000. The income which came to be assessee had estimated his income at Rs. 50,000. The income which came to be assessed for the relevant year was about Rs. 97,000 and the unexpected income was Rs. 40,000 and odd. The total disparity between the estimate and the income of the assessee assessed is about Rs. 7,000. We are aware of certain authorities of some High Courts which have been cited before us where bare disparity of the figure has not been considered to be conclusive. With great respect we agree that the 'bare fact' of disparity between the estimate and the actual income would not necessarily lead to an inference that it was untrue as held in United Asian traders' case or for that matter in P. V. Kurians case but we of the opinion that it is not altogether an irrelevant consideration for assessing the truth or untruth of the estimate in the circumstances of the case before us.
The next argument urged by the learned counsel for the revenue based on the reasons given by the learned Members of the Tribunal was the failure on the part of the assessee to file its revised return by the 15th of March, 1957, which could have included unexpected income. In this context the observations made by the learned judges of the Madras High Court in P. Arunachala Mudaliars case appear to us to be relevant. Quoting from the head-note which correctly summarises the position, the observations are :
'Held, that the assessee made an honest and fair estimate in September, 1952, upon which he paid the advance tax. The assessees failure to submit a revised return in March, 1953, was not a relevant consideration as the mens rea of the assessee at the time when he made the estimate could not be adjudged by his subsequent conduct. The imposition of penalty was therefore unwarranted. Penal provisions have to be so construed so as not to affect the subject unless he is plainly caught within the literal statutory language.'
We are in respectful agreement with the aforesaid proposition. Neither the subsequent events nor the subsequent conduct will relate back to the truth or falsity of an earlier estimate made by an assessee on the state of its accounts as it existed on the date when he made the estimate of his income as required under section 18A (2) of the Act. Section 28(1)(c) does not punish the failure to revise the estimated return but an untrue estimate furnished. It is not necessary to examine other cases cited before us for they do not directly assist us in answering the question referred to us.
In view of what we have said above in the facts and circumstances of the case the levy of penalty of Rs. 2,500 on the assessee under section 18A (9) read with section 28(1)(c) of the Act was not valid in law.
The reference is answered accordingly . The department shall pay the costs of the assessee.