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indira Chemical Agency Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 256 of 1974 (Reference No. 132 of 1974)
Judge
Reported in[1979]119ITR569(Mad)
ActsIncome Tax Act, 1961 - Sections 271(1) and 283(2)
Appellantindira Chemical Agency
RespondentCommissioner of Income-tax
Appellant AdvocateK. Srinivasan and ;K.C. Rajappa, Advs.
Respondent AdvocateA.N. Rangaswami and ;Nalini Chidambaram, Advs.
Excerpt:
- - ' 3. this provision clearly shows that any kind of notice which is liable to be issued under the act could, in the case of a dissolved firm, be served on any person, who was a partner of the firm......as 'the act ':--'(1) whether the penalty proceedings are validly initiated and concluded when the assessee firm was dissolved on july 14, 1971, and in the absence of individual notice to all the partners of the erstwhile firm ?(2) whether, on the facts and in the circumstances of the case, the tribunal was justified in upholding the levy of penalty of rs. 55,000 for the assessment year 1959-60 and rs. 90,000 for the assessment year 1963-64?(3) whether, on the facts and in the circumstances of the case, the tribunal was justified in inferring without materials that the assessee-firm is guilty of concealment '2. as far as the first question is concerned, the tribunal has referred to several decisions of the high courts and the supreme court showing that assessments of a partnership firm.....
Judgment:

Sethuraman, J.

1. The assessee was a partnership firm with six partners carrying on business in the purchase and sale of chemicals and dye stuffs. This firm was dissolved on July 14, 1971. But still there were transactions which resulted in the income assessable in the assessment year 1963-64, for which the relevant previous year ended on 31st March, 1963. In the present reference we are concerned with the assessment years 1959-60 and 1963-64. In making the assessment for the assessment year 1963-64, the ITO rejected the book results and estimated the income at Rs. 5,00,000 as against Rs. 1,27,540 returned by the assessee. On appeal, the AAC set aside that assessment with a direction to the ITO to re-do it. Thereafter, the assessee filed a petition on July 24, 1969, under Section 271(4A) agreeing to an addition of Rs. 50,000 for the assessment year 1959-60 and Rs. 71,000 for the assessment year 1963-64. It was, however, found that the capital account as on April 1, 1963, showed an excess of assets over liabilities at Rs. 5,05,624 whereas if the books were correctly maintained the excess should have been only Rs. 2,14,787. The difference between the said two amounts, namely, Rs. 2,90,837. was not satisfactorily explained. At that stage, the assessee by a letter dated February 26, 1970, agreed for additions being made for the assessment years 1959-60 and 1963-64, The additions so offered came to Rs. 1,42,413 for 1959-60 and Rs. 2.00,538 for 1963-64. The leviability of penalty with reference to the concealed income assessed on the assessee was referred to the IAC who held that the assessee was guilty of concealment of income and accordingly levied penalties of Rs. 55,000 and Rs. 90,000 respectively for the assessment years 1959-60 and 1963-64. The assessee thereafter appealed to the Income-tax Appellate Tribunal and the contentions taken before it were that a combined reading of Sections 189(3) and 189(4) and Section 274(1) made it clear that, unless a notice was served on each one of the partners and they were given a reasonable opportunity of being heard, the levy of penalty would be illegal, that by not serving individual notices on each one of the partners and not giving a reasonable opportunity of being heard, there was a violation of the principles of natural justice, and that the firm has not concealed any income or furnished inaccurate particulars thereof when a sum of Rs. 1,42,413 and another sum of Rs. 2,00,538 came to be offered for assessment. These contentions were rejected by the Tribunal by its order dated 31st August, 1972. It is against the said order of the Tribunal that the assessee applied for and obtained a reference of the following questions for the opinion of this court, under Section 256(1) of the I.T. Act, 1961, hereinafter referred to as 'the Act ':--

'(1) Whether the penalty proceedings are validly initiated and concluded when the assessee firm was dissolved on July 14, 1971, and in the absence of individual notice to all the partners of the erstwhile firm ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the levy of penalty of Rs. 55,000 for the assessment year 1959-60 and Rs. 90,000 for the assessment year 1963-64?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in inferring without materials that the assessee-firm is guilty of concealment '

2. As far as the first question is concerned, the Tribunal has referred to several decisions of the High Courts and the Supreme Court showing that assessments of a partnership firm could be made by serving notice on any one of the partners and that it was not necessary to serve individual notices on all the partners of the firm for making the assessment. In the view of the Tribunal the said decisions would equally apply to the levy of penalty. The learned counsel for the assessee submitted that notices should have gone to the individual partners of the firm. However, he was not in a position to sustain that contention, in view of the provisions of Section 283(2) of the Act which runs as follows:

' Where a firm or other association of persons is dissolved, notices under this Act in respect of the income of the firm or association may be served on any person who was a partner (not being a minor) or member of the association, as the case may be, immediately before its dissolution.'

3. This provision clearly shows that any kind of notice which is liable to be issued under the Act could, in the case of a dissolved firm, be served on any person, who was a partner of the firm. The result of such service would be that on the service of the said notice any further proceedings would be binding on all the partners of the firm which had been dissolved. Therefore, there is absolutely no merit in the contention that notices should have gone to each and every individual partner of the, dissolved firm in the present case. As Section 283(2) of the Act does not restrict itself either toassessment or to penalty and is wide enough in its amplitude to cover all the proceedings under the Act, the service of notice with reference to penalty proceedings on one of the partners of the dissolved firm was enough compliance with the provisions of the Act. The first question will, therefore, have to be answered in the affirmative and against the assessee.

4. As far as the second question is concerned, the learned counsel for the assessee drew our attention to a letter dated 26th February, 1970, and the said letter runs as follows I

' In connection with our above application (referring to petition under Section 271(4A) of the Act) and in continuation of the discussions we have had with you, we are agreeable to the following proposals :

1. The following additions are to be made to our total income as detailed below;

Rs.Assessment year : 1959-601,42,413Assessment year : 1963-642,00,538

2. A minimum penalty calculated at 20% in respect of the tax on the above additions is to be levied.

3. We shall pay off the tax demand on the due date subject to a minimum of Rs. 50,000. Any excess amount shall be paid by us within three months from the date of service of the notice of demand.'

5. The learned counsel submitted that what was agreed to was only levy of penalty at 20% in respect of the additions made for the assessment years 1959-60 and 1963-64. It is not disputed that the penalty as levied by the IAC and confirmed by the Appellate Tribunal is within the limits fixed under the Act. The only point that is agitated is that the assessee having agreed to 20% alone as penalty, a higher penalty should not have been levied. There is absolutely no merit in this contention because, once the assessee agreed that penalty was leviable, the levy of penalty has to be in accordance with the provisions of the Act and so long as the penalty did not exceed the maximum prescribed in the Act, there is absolutely no room for any say on it on our part. In these circumstances, the second question also is devoid of merit and has to be answered in the affirmative and against the assessee.

6. Now, coming to the third point, namely, whether the Tribunal was justified in inferring on the materials that the assessee firm was guilty of concealment, we have already extracted the letter dated 26th February, 1970, in which the assessee had agreed to the levy of penalty. In those circumstances, there is absolutely no merit in this contention also, because when once the leviability of penalty is agreed to, it follows that the assessee agreed that there was concealment attracting the provisions of Section 271(1)(c) of the Act.

This question also has to be answered in the affirmative and against the assessee.

7. All the questions are answered in the manner indicated above. The respondent will be entitled to his costs. Counsel's fee is Rs. 500 (Rupees five hundred only).


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