(1) The question referred to us under S. 66(2) of the Indian Income-tax Act is:
"Whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 9323 on the assessee under S. 18-A(9) read with S. 28(1)(c) of the Income-tax Act was lawful?"
The assessment year is 1954-55, the relevant account year ending with 31-3-1954. The assessee has several sources of income; one of them is a bus business. In September 1953, the Income-tax Officer issued a demand under S. 18A(1) of the Act, basing that demand on the last completed assessment, which was that of the assessment year 1948-49. Under sub-section, (2) the assessee has the liberty of estimating his income and of paying advance tax in accordance with such estimate. In the estimate so submitted by him, he gave the estimated income as furnished by him which came to Rs. 35,515. On assessment, however, his income was fixed at Rs. 90,759.
The Income-tax Officer thereafter proceeded by apply S. 18-A(9) of the Act. This sub-section provides 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), an estimate of tax payable by him, which he knew or had reason to believe to be untrue, then the assessee shall be deemed to have deliberately furnished inaccurate particulars of his income, and S. 28 is made applicable to the case. The proviso to the section also fixes the quantum of penalty that would be leviable.
In the view, therefore, that the assessee's estimate of income was untrue to his knowledge, the Income-tax Officer imposed the penalty in question. Before doing so, he issued a notice to the assessee. The assessee's explanation was that the higher figure of the assessable income, arrived at by the Income-tax Officer, was mainly due to disallowance's of depreciation to the extent of about Rs. 20,000 and odd. It was also claimed that part of the addition made by the Income-tax officer represented income which the Income-tax Officer inferred should have been made in the year of account in order to justify certain investments made by the assessee immediately after the close of the year of account. It was contended accordingly that since those additions were made rejecting certain objections put forward by the assessee, the enhancement over the returned income did not represent the real income which the assessee could possibly have estimated and included in his estimate under Section 18A(2). This explanation was not accepted, principally for the reason that the assessee did not produce any basis for the estimate which he had made. Accordingly, the penalty was imposed.
(2) Even in the appeal before the Appellant Assistant Commissioner, no figures to justify the computation of the estimate made by the assessee were made available. The Appellate Assistant Commissioner upheld the imposition of penalty.
(3) In the further appeal, to the Tribunal, the contentions again did not carry conviction to that appellate authority. The appellate authority observed that the assessee did not object to the addition of about Rs. 44,000 to the returned income. It may be stated here that the assessment order itself was not questioned by way of appeal. The Tribunal was satisfied that the case fell within the scope of S. 18A(9) and dismissed the appeal.
(4) The question was directed to be referred to us on an application of the assessee under S. 66(2) of the Act.
(5) Mr. Swaminathan, learned counsel for the assessee, again put forward the same contentions, viz., that the income computed by the Income-tax Officer was the result of the disallowance of depreciation, and inclusion of income which should lawfully have been taxed in the succeeding year of assessment. Whatever the merits of these contentions may be, they have not been canvassed in a regular appeal against the assessment which the law provides, and for the purposes of this reference, we have to take it that the income computed by the Income-tax Officer is the income which was derived by the assessee during the year of account.
The learned counsel has referred to a decision of this court to which one of us was a party inArunachala Mudaliar v. Commr., of Income-tax (1963) 50 ITR 36 (Mad) wherein it has been pointed out that the penal provision has to be construed strictly and unless every care and caution is taken to see that it is so applied, it may very well turn out to be an instrument of oppression. The proceedings leading to the imposition of the penalty are of a quasi judicial character and the authority empowered in that regard has to discharge his duties in a fair and unbiased manner. After having said so, this court observed that the real question is whether the assessee knew or had reason to believe that the estimate submitted by him was untrue at the time when he made it. Since this related to the state of account at the point of time when he submitted the estimate and he had business accounts before him when he made the estimate, if it could be shown that he based the estimate only on the trend of income as disclosed by the business accounts, notwithstanding the variation between his estimate and the final assessed figure, it could not be said that he had any reason to believe his estimate to be untrue. The facts of that case were that an assessee made an estimate of his income at a particular figure which was certainly lower than the figure arrived at the regular assessment. The assessee pointed out and established that the income was practically derived from shares in partnerships dealing in cotton, and that this income bad been following a downward trend in the earlier part of the year. It was established that the removal of price control and other factors gave a boost to the income in the later part of the year and that was the reason for the increased income. It was thus positively shown that at the time when the assessee made the estimate, he could not know the trend of the income in the later part of the year and that when be submitted his income, he based it upon the position as it was during the previous financial year and the earlier part of the assessment year. This court, on the material, took the view that there were no circumstances which would justify the interference that the assessee knew his estimate to be untrue.
(6) It seems tome that the facts in the present case bear an altogether different complexion. It is not in dispute that certain investment were made by the assessee during the first week of April 1954, that is to say, immediately after the close of the account year. It was found that the receipts from the bus business or from any other source of income of the assessee did not explain these investments at all. The Income-tax Officer therefore took the view that this income should have been derived during the accounting year and added that to the assessable income. As we have pointed out, the view taken by him in this regard was not canvassed in appeal, and the finding of the Income-tax Officer that the sum of Rs. 25,000 added on this head did represent the income of the assessment year cannot be disputed at this stage.
(7) But the more important question is whether the assessee is not bound in a proceeding under S. 18A(9) read with S. 28, to satisfy the Income-tax Officer that he had reasonable belief in computing his income at the figure of his estimate. The disparity between the estimate and the finally assessed figure is so great that the assessee's mere statement that he thought and that it was made honestly cannot be accepted as it stands. As was pointed out in the case referred to, the assessee is expected to make an honest estimate, and he can do so only on the basis of the accounts of that part of the year which were available with him as on the date of the estimate. Both the Income-tax Officer and the Appellate Assistant Commissioner have pointed out that the basis upon which the assessee reached his estimate was not made known to them at all. It is true that before the Tribunal a statement giving the date for the estimate was filed. But the Tribunal was not prepared to attach any weight to this statement as furnishing the property basis for the estimate and expressed its view that the statement is an afterthought. The fact accordingly is undisputed that the assessee was not able to show how the estimate was justified by the state of accounts as they stood on the date of the estimate.
(8) It should follow that there wee materials before the authorities below upon which the levy of the penalty appears to be fully justified. The question is answered accordingly. The assessee will pay the costs of the Department. Counsel's fee Rs. 250.
(9) Reference answered.