1. The assessee in this group of cases is a registered firm with three partners carrying on business in the manufacture and sale of handloom piece-goods. For the assessment years 1953-54 to 1961-62, the Income-tax Officer assessed the firm's income on the the basis of revised returns furnished by the assessee. The revised returns were submitted by the assessee firm in the following circumstances. For 1962-63, the assessee filed a return of income on December 26, 1962. The income-tax Officer, in the course of the proceedings for assessment for wheat year, noticed credits appearing in the firm's accounts in the names of certain multani bankers. Those multani bankers were reputed in the Income-tax Department to have indulged in hawala transactions, that is to say, in aiding income-tax assessees to post credit entries in their accounts as though they had obtained loans on hundis and had repaid them while no money passed as loans, nor were any money returned as repayment. Before, however, investigations could be concluded as to the genuineness and the nature and source of those credits, the assessee filed a petition before the Commissioner of Income-tax purporting to be made under section 27(4A) of the Income-tax Act, 1961. In that petition, it referred to the credits appearing in their books in the names of multani financiers, the bulk of which arose in the account years relevant to 1956-67 to 1958-59. The peak credit in the multani bankers' accounts amounted to Rs. 6,00,000. The assessee submitted that the peak credit may be regarded as the firm's income. But since the entire income could not have accrued in a single year, it was suggested that the amount may be spread over six years of assessment from 1958-59 attributing Rs. 50,000 (sic) in each of the assessment years as the income over and above what was returned by the assessee-firm from out of its books of account. Having offered for assessment the peak credit as spread over in this manner in a number of assessments, the assessee pleaded that in view of the voluntary disclosure made by them of the income represented by the hundi loans, any penalty which might otherwise be exigible might be waived. A copy of the petition presented before the Commissioner of Income-tax was marked to the assessing officer. The officer, however, completed the assessment for the assessment year 1962-63 without paying any regard to the assessee's disclosure petition. He made a similar assessment for the subsequent year 1963-64. These assessments were taken in appeal by the assessee to the Appellate Assistant Commissioner. It was represented before the Appellate Assistant Commissioner that in view of their disclosure petition which was being considered by the Commissioner of Income-tax, the assessments made without any regard for that disclosure petition should be set aside. The Appellate Assistant Commissioner accepted this submission, set aside the assessment orders for 1962-63 and 1963-64 and directed the Income-tax Officer to make fresh assessments in conformity with any order that the Commissioner may pass on the basis of the disclosure petition filed by the assessee. Subsequently, the assessee filed a further petition before the Commissioner of Income-tax which practically set out an agreed basis for making the assessments on the assessee having regard to the credits in the multani bankers' hundi loan accounts. On the basis of those proposals, the assessee also filed revised returns for the years 1953-54 to 1965-66. In that petition, it undertook to pay the tax payable on these disclosed amounts thus at Rs. 1,00,000 at once and the balance in 24 equal monthly instalments commencing from April, 1969. It also furnished a security for the due payment of any additional tax that might be levied as a result of the disclosure. To secure the due payment of the tax, the assessee gave its immovable property in Angappa Naicken Street, Madras, as security under a security bond. Having done so, it made a request to the Department that only a nominal penalty may be levied.
2. The Income-tax Officer accepted the offer of the assessee and also the scheme of spread-over of the amount of peak credits as between the several years. The following table sets out for each of the relevant assessment years the amount offered by the assessee for the assessment years, the amount offered by the assessee for assessment over and above the income already assessed and the actual additions made by the Income-tax Officer on the basis of the assessee's offer :
Assessment year Amount to be addedRs.1953-54 1,05,0001954-55 83,0001955-56 83,0001956-57 76,5641957-58 85,9391958-59 1,12,3181959-60 61,1911960-61 1,00,5711961-62 75,9671962-63 80,7631963-64 1,08,9361964-65 1,05,8271965-66 86,779
3. It will be seen from the above table that the Income-tax Officer accepted the last five offers made by way of voluntary disclosure of income which are not earlier disclosed by them in their original returns and which were are not disclosed as income receipts in the books of account.
4. While the Income-tax Officer made the assessments in this manner following the voluntary disclosure, he nevertheless initiated penalty proceeding against the assessee under section 27(1)(c) of the Income-tax Act, 1961. These proceedings subsequently stood transferred to the Inspecting Assistant Commissioner. When the assessee was asked to show cause against the levy of penalty, the assessee represented that these were not cases in which action under section 271(1)(c) could be launched. The assessee submitted that the assessment was made on the basis of the petition under section 271(4A) of the Income-tax Act filed by the assessee before the Commissioner of Income-tax, even before any investigation was undertaken by the Department. It was further represented that the figures offered by the assessee for the assessments have been accepted as correct. Besides, the assessee also paid off all the tax demands and had furnished adequate security of immovable property for the taxes that might still have to be raised. Above all, the assessee had co-operated with the Department for the expeditious completion of the assessments. In these circumstances, the assessee submitted that there was no case for levy of penalties.
5. The Inspecting Assistant Commissioner, however, held that the penalties had to be levied on the assessee on the score that it had concealed particulars of their income. The Inspecting Assistant Commissioner observed that since the assessee had offered the peak credit in the accounts as taxable income, the assessee must be taken to have admitted that the credit entries were bogus and they represented the assessee's concealed income. The Inspecting Assistant Commissioner further held that the facts that the assessee had admitted the income character of the cash credits while filing the returns and had also co-operated with the Department in getting the assessments concluded and also paid the taxes levied on the basis of reassessments were all irrelevant factors in the proceedings under section 271(1)(c) of the Act. In this view, he levied the following penalties under section 271(1)(c) :
Assessment year Rs.1953-54 15,6661954-55 13,6101955-56 14,8921956-57 13,7181957-58 15,8521958-59 17,4651959-60 9,2741960-61 19,3801961-62 12,7481962-63 13,5421963-64 18,6701964-65 17,4611965-66 7,750--------------2,90,028--------------
6. On appeal, the Tribunal sustained the penalties for all the years although they did so for different reasons. For the first nine years 1953-54 to 1961-62, the penalty proceedings were started on the foot of reassessment proceedings made under section 147. The Tribunal sustained the penalties for those years on the score that the reassessments were all made on the vary basis of the assessee's revised returns filed during the course of reassessment proceedings which disclosed an income far higher than income returned by the assessee in the original assessment proceedings. As for the next assessee come out with voluntary disclosure. This feature, according to the Tribunal, showed that the assessee had concealed its income for this years. For the last three years, namely, 1963-64 to 1965-66, the Tribunal accepted the fact that the assessee had filed revised returns even before the Income-tax Officer set on foot any inquiries or investigations. However, the revised returns even for those years, according to the Tribunal, came about only because of the inquiries being conducted by the Income-tax Officer in the course of the assessment for 1962-63. The Tribunal pointed out that in the voluntary disclosure petition, it was admitted that the crediting of of interest on hundi credits was also fictitious and since the interest figured in the last three years of assessment, 1963-64 to 1965-66, the assessee must be treated as having concealed their income. The Tribunal then proceeded to hold generally that the assessee cannot escape from the penalties merely because the additional assessment adhered to the figures returned by the assessee in the revised returns.
7. In this group of references by the assessee, the very basis of the Tribunal's decision is challenged from different angles such as legality of penalty, burden of proof of concealment of income, reasonableness of inference of concealment and non-detection of concealment by the Department before the filing of the revised returns. Contentions based on s. 271(4A) were earlier addressed by the assessee before the Inspecting Assistant Commissioner in the course of the penalty proceedings. Section 271(4A) came into the discussion because the assessee had filed a voluntary disclosure of income before the Commissioner and had invoked the Commissioner's power under section 271(4A) of the Act. This provision empowers empowers the Commissioner to waive altogether or at least reduce the penalty impossible on the assessee even for concealment of income, if certain conditions are fulfilled, namely, (i) if the assessee voluntarily and in good faith has made a full disclosure of his income before an investigation is set on foot by the Income-tax Officer in the concerned assessment or before the Income-tax Officer actually detects any concealment on the part of the assessee; (ii) the assessee has co-operated in the inquiry into the assessment of income; and (iii) that the assessee has either paid or made satisfactory arrangements for payment of the tax payable on the basis of his voluntary disclosure. Before the Inspecting Assistant Commissioner, the assessee urged that they had fulfilled all those conditions and, therefore, no penalty should be levied. As earlier indicated, the Inspecting Assistant Commissioner, however, considered that those contentions have properly to be urged in a different forum, namely, before the Commissioner, and in different proceedings, namely, under section 271(4A).
8. We agree with the Inspecting Assistant Commissioner to one extent that the two proceedings, one under section 271(1)(c) and the other under section 271(4A), are different proceedings. The question, however, is whether the grounds for penalty stated by the Inspecting Assistant Commissioner and approved by the Tribunal are good in law.
9. We think we may address ourselves to this question by adopting the manner of the Tribunal and examining the several assessments involved in these references as falling under well-defined groups. The penalties falling under the first group relate to nine assessment years from 1953-54 to 1961-62. The levy for this group of assessment years was made in the course of the reassessment proceedings. The record shows that on the very day the assessee filed the returns in the course of reassessment proceedings the assessments were completed, adopting, without any material change, the figures offered for assessment by the assessee. The pattern of these reassessments shows that in the course of reassessment proceedings, at any rate, there was no concealment by the assessee. However, both the Inspecting Assistant Commissioner and the Tribunal only laid stress on the undeniable fact that there was a blatant concealment of income on the part of the assessee in the original assessments for the years 1953-54 to 1961-62. The question is whether for such concealment, penalties can be levied on the assessee in the reassessment proceeding. According to the legal position laid down by the Supreme Court in a recent decision, a reassessment under the taxing enactments completely obliterates without a trace the original assessment proceedings, vide Deputy Commissioner of Commercial Taxes v. Sri Ramulu : 2SCR593 . It was observed that once reassessment was started, the initial order of assessment creases to be operative. It was further observe that the effect of reopening the assessment was to vacate or set aside the initial order of assessment and to substitute in its place the order made on reassessment. According to the Supreme Court, the initial order for assessment in such a case cannot be said to survive even partially. This decision of the Supreme Court was rendered in a sales tax case.
10. In a decision dealing with reassessment for income-tax in Jaganmohan Rao v. CIT : 75ITR373(SC) , the Supreme Court went further and observed that once an assessment is reopened by the issue of a notice of reassessment, the previous under assessment is set aside and the whole assessment proceedings start afresh.
11. Although the two decisions of the Supreme Court cited above lay down the legal position on the question whether the original assessment survives the moment reassessment proceedings are started, there is no reported decision by any court to the effect that on reassessment being made, no penalty can be levied on the basis of the assessee's concealment in the original assessment proceedings. On the contrary, there is a decision of the Supreme Court in Malbary and Bros. v. CIT : 51ITR295(SC) , in which it was held that for a concealment in the original assessment proceedings, the assessee may be rendered liable for penalty in the course of the reassessment proceedings. That was a case where an assessee did not report his income from a foreign branch in the course of original assessment proceedings but on the assessment being reopened, he disclosed the entire branch income with correct and complete particulars. The reassessment was based solely on the basis of the figures furnished by the assessee. There was also no other default on his part in the reassessment proceedings. Nevertheless, penalty was levied on the assessee on the score that he concealed the branch income in the course of the original assessment proceedings. This penalty was upheld by the Supreme Court.
12. We do not find any discussion in this case about the effect of a reassessment on the original assessment proceedings. Nor has the court discussed the position whether concealment of income by the assessee in the course of the original proceedings would survive when the original assessment itself is supplanted by the reassessment. It, however, seems to us that even on the basis of the position that reassessment proceedings arose out of existence of the original assessment proceedings, the assessee can by no means be regarded as not having concealed his income, merely because in the reassessment proceedings he has made a clean breast of the whole income and expenditure position. The very reason for reassessment proceedings especially under section 147(a) of the Income-tax Act is that income has escaped assessment by reason of the failure or omission on the part of the assessee to fully and truly disclose all material facts necessary for his assessment. when such is the basis for reassessment, it would be quite odd to hold that the assessee is not guilty of concealment of income, merely because in the reassessment proceedings he unconceals what he has concealed in the original assessment. We are, therefore, satisfied that the assessee in the present case was properly charged with penalty in the reassessments for 1953-54 to 1961-62 notwithstanding the fact that it was the assessee's own voluntary disclosure which brought about the reassessments and despite the circumstance that not a pie more was added that what was disclosed by the assessee in the reassessment proceedings. We must, therefore, uphold the penalties for these years.
13. This leaves us with the penalties for the subsequent assessment years 1962-63 to 1965-66. Amongst those assessments, those for 1962-63 and 1963-64 from a distinct group and may be dealt with as such. For these two assessment years, the assessee filed returns of income which the Income-tax Officer found to be incorrect and incomplete. While completing the assessments, therefore, the Income-tax Officer issued penalty notices under section 271(1)(c) on the score that the assessee had concealed particulars of his income. The assessee appealed against those assessments. During the tendency of those appeals before the Appellate Assistant Commissioner, the assessee and the Department arrived at a settlement on the basis of the assessee's voluntary disclosure. To give effect to the settlement, the Appellate Assistant Commissioner set aside these two assessments and directed the officer to redo the assessments and implement the terms of the of the settlement. In the events that happened, the question is whether in the assessments made by the officer after remand by the Appellate Assistant Commissioner, there was any scope for the levy of penalty solely for the reason that in the original assessment proceedings, the assessee had not truly or completely disclosed his entire income. It seems to us that the position is a fortiori. The Appellate Assistant Commissioner, while disposing of an appeal, has the power to set aside an assessment and direct the officer to redo the assessment, vide section 256(1)(a) of the Act. It seems to us that what can be set aside in exercise of this power is an order of assessment made by the officer. The Appellate Assistant Commissioner cannot set aside a return made by the assessee or completely rub off from the record the conduct of the assessee on concealing the particulars of his income in the assessment proceeding. The position seems to us to be similar to the concealment of income in the course of the original assessment proceedings. As contrasted with reassessment proceedings, that concealment would lend to survive even the reopening of the assessment and the subsequent retiring of a reassessment. By analogy of deduction from Malbary & Bros. v. CIT : 51ITR295(SC) , we must hold that the assessee cannot be absolved from having concealed his income in the course of the original assessment proceedings, merely because the original assessments were set aside on appeal by the Appellate Assistant Commissioner. The penalties for the two years 1962-63 and 1963-64 must also be upheld.
14. This leaves us only with the last two assessment years under reference. namely, 1964-65 and 1965-66. The assessee filed original returns for these two years, but subsequently, even before the officer took up the returns for inquiry, the assessee filed revised revised returns reporting higher figures of income, adopting the voluntary disclosure settlement between him and the Department. In other words, even before the Income-tax Officer set on foot any investigation and even before he detected any concealment of income in these two years, the assessee came out with revised returns on the basis of his voluntary disclosure. What is more, the assessments which were completed by the Income-tax Officer were based out and out on the figures offered by the assessee on the basis of the voluntary disclosure in the revised returns. Nevertheless, the inspecting Assistant Commissioner of Income-tax held that even for those two years, the assessee was liable for penalty.
15. In our view, section 271(1)(c) could not be invoked against the assessee for these two years, namely 1964-65 and 1965-66. It is true that the original returns filed by the assessee understated the income. But before the ink on the returns were dry, as it were, the assessee came out with the full disclosure on the basis of which the assessments had been completed. In these circumstances, we fail to see how any concealment of income can be attributed to the assessee. In a recent unreported judgment rendered by this court in Tax Case No. 466 of 1977 (M. Radhakrishnan v. CIT - since reported in : 147ITR133(Mad) , it was held that penalty under section 271(1)(c) cannot be levied merely by spelling out the concealment from the original return of income. This court held that for a finding as to concealment, the whole gamut of the assessment proceedings will have to be taken note of and not merely the initial return filed by the assessee. It was pointed out in that case that although the original return furnished by the assessee contained omissions, yet those omissions were made good voluntarily and before any investigation was set on foot by the assessing officer. In the event, it was held that it cannot be said that there was any concealment in the course of the assessment proceedings. This unreported decision covers the present case in regard to the penalties for the last two assessment years.
16. Learned counsel for the Revenue cited, in support of the levy of penalty for the last two years, CIT v. J. K. A. Subramania Chettiar : 110ITR602(Mad) . In the unreported judgment to which we have made reference earlier, it was observed that Subramania Chettiar's case : 110ITR602(Mad) cannot be regarded as a complete tract on the construction of section 271(1)(c) of the Act, but that it turned purely on the answer to the two minor legal contentions. We do not accordingly feel incommoded, in the slightest degree, by Subramania Chettiar's case : 110ITR602(Mad) , in following the unreported judgment and holding that the levy of penalties for the last two years is illegal.
17. Learned counsel for the Revenue referred to another judgment of a Bench of this court in CIT v. Krishna & Co. : 120ITR144(Mad) , which was also a case of penalty under section 271(1)(c) of the Act. It was somewhat broadly stated in that case that where the assessee himself made an admission about having earned income which was not shown by him in the original return, that by itself would be sufficient to justify a penalty for concealment. It must, however, be pointed out that in that case, the admission or confession by the assessee as to his having earned a larger income that he reported originally came about only after an inquiry was set on foot by the Income-tax Officer and after the Income-tax Officer was about to detect the concealment. In the present case, however, the fact is quite different. As we pointed out earlier, even before the Income-tax Officer took up for scrutiny the assessee's returns for these two years, the assessee had filed a voluntary disclosure and on that basis had offered income over and above that which he furnished in the original return. We do not, therefore, see any parallel between the present case and the case in CIT v. Krishna & Co. : 120ITR144(Mad) .
18. The first question of law propounded for our consideration in this group is as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that section 271(1)(c) is attracted and the levy of penalty of Rs. 15,666; Rs. 13,610; Rs. 14,892; Rs. 13,718; Rs. 15,852; Rs. 17,465; Rs. 9,274; Rs. 19,380; Rs. 12,748; Rs. 13,542; Rs. 18,760; Rs. 17,461; Rs. 7,750 is lawful for the assessment years 1953-54; 1954-55; 1955-56; 1956-57; 1957-58; 1958-59; 1959-60; 1960-61; 1961-62; 1962-63; 1963-64, 1964-65 and 1965-66, respectively ?'
19. We may sum up our answer to the above question of law in the following terms : The penalties for the first nine assessment years, namely, 1953-54 to 1961-62, must be held to have been levied in accordance with law. The penalties for the last two assessment years 1964-65 and 1965-66, however, must be held to have been wrongfully levied, since there was no basis for the finding as to concealment.
20. In the light of our answer to the first question, we do not think the other question of law propounded by the Tribunal arise at all for consideration . Those questions are not independent question in themselves, but they only highlight the different facets of the question of law which we have already disposed of. We desist from entering any formal answers to the rest of the questions of law.
21. Having regard to the results of these references, we do not make any order as to casts.