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Rathnam and Co. Vs. Inspecting Assistant Commissioner and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberWrit Petition No. 24 of 1976
Judge
Reported in(1980)14CTR(Mad)310; [1980]124ITR376(Mad)
ActsIncome Tax Act, 1961 - Sections 271(1)
AppellantRathnam and Co.
Respondentinspecting Assistant Commissioner and anr.
Appellant AdvocateK.S. Balakrishnan, Adv. for K.S. Sivaraman, ;C. Kasiviswanathan, ;B. Kumar, ;P.S. Ramanathan and ;K. Rajamanickam, Advs.
Respondent AdvocateJ. Jayaraman and ;Nalini Chidambaram, Advs.
Excerpt:
direct taxation - penalty - section 271 (1) of income-tax act, 1961 - petition against order of commissioner rejecting claim of petitioner for cancellation of penalty for year 1963-64 - assessee's acceptance of addition led to inference that gross profit shown by assessee in his books of accounts was low and this was done deliberately - assessee deliberately concealed particulars of income and liable for penalty under section 271 (1) - petition dismissed. - .....on agreed basis. for the year 1963-64, addition came to be made by the ito on the basis that the gross profits shown in the accounts of the assessee was too low to be accepted. after the completion of the assessment for the above years proceedings were initiated for penalty under section 271(1)(c) and penalties were levied in respect of all the years by the iac. as against the orders levying penalty for the years 1960-61 to 1963-64, revision petitions had been filed before the commissioner and against the order levying penalty for 1964-65, an appeal was filed before the income-tax appellate tribunal. the commissioner cancelled the penalty for 1960-61, 1961-62 and 1962-63, but he sustained the penalty for 1963-64. as regards the order levying penalty for 1964-65, which was challenged.....
Judgment:

Ramanujam, J.

1. The petitioner herein is a firm carrying on business as building contractors and dealers in tiles. For the assessment years 1960-61, 1961-62, 1962-63 and 1964-65, certain additions for bogus hundi credits were made by the ITO in the assessments on agreed basis. For the year 1963-64, addition came to be made by the ITO on the basis that the gross profits shown in the accounts of the assessee was too low to be accepted. After the completion of the assessment for the above years proceedings were initiated for penalty under Section 271(1)(c) and penalties were levied in respect of all the years by the IAC. As against the orders levying penalty for the years 1960-61 to 1963-64, revision petitions had been filed before the Commissioner and against the order levying penalty for 1964-65, an appeal was filed before the Income-tax Appellate Tribunal. The Commissioner cancelled the penalty for 1960-61, 1961-62 and 1962-63, but he sustained the penalty for 1963-64. As regards the order levying penalty for 1964-65, which was challenged before the Tribunal, the petitioner succeeded in getting the order of penalty cancelled by the Tribunal. Since the petitioner's request for the cancellation of penalty for the year1963-64 was rejected by the Commissioner, the petitioner has now approached this court for the issue of a writ of certiorari calling for the records of the Commissioner and to quash his order in so far as it rejected the claim of the petitioner for cancellation of the penalty for the year 1963-64.

2. The contention advanced by the petitioner in the writ petition is that before April 1, 1964, proof of deliberate concealment on the part of the assessee should be established, that, in this case, there is absolutely no material to indicate that the assessee had deliberately concealed the particulars of income and that the mere fact that the petitioner had agreed for an addition on the basis of a higher percentage of gross profit will not lead to the inference that there has been a deliberate concealment on the part of the assessee. It is said that the assessee agreed for an addition to the lower percentage of gross profit only for the purpose of assessment and not for purpose of penalty, and, therefore, the agreement of the petitioner for the estimate of income arrived at by the ITO based on a higher percentage of gross profit cannot form the basis for the levy of penalty under Section 271(1)(c), unless a deliberate concealment on the part of the assessee is positively established by the ITO.

3. In the counter-affidavit filed on behalf of the respondents, it has been pointed out that the addition made by the ITO in the assessment year 1963-64 was in respect of low gross profit and the petitioner had agreed to the said addition. The acceptance of the addition will automatically lead to the inference that there has been a deliberate concealment of the income. According to the counter-affidavit, the acceptance of the estimate made by the ITO will show that the gross profit has been purposely shown to be low by the assessee, and besides that the entries in the account books produced by the assessee are not possible for verification in the absence of the production of the necessary purchase vouchers, etc. Thus, according to the respondents, once the petitioner, without taking steps or effort to satisfy the ITO as to the correctness of the returns submitted by him, agrees to the estimate proposed by the officer with reference to the low percentage of gross profit, he should be taken to have accepted the position that there is a concealment in the return as regards the true income. In the circumstances, the question for consideration is whether the acceptance of the gross profit estimated by the ITO for the assessment year 1963-64 by the assessee will amount to acceptance of the concealment of income attracting Section 271(1)(c) of the I.T. Act. In this case, the IAC, the first respondent herein had actually found in his order, dated 24th December, 1969, imposing the penalty as follows :

'In the course of assessment proceedings for the year 1963-64, the ;issessees themselves requested (this request was also conceded by the Income-tax Officer) that one consolidated addition be made covering boththe increase in the peak credit of bogus loans and the deficiency in gross profit in contract business. The assessee had thus accepted by implication at least that what was brought in the guise of hundi loans repre-sented the understated business profits. It is also not capable of complete verification and the assessees themselves agreed that the net profit had to be estimated.'

4. It is on this basis the first respondent imposed the penalty for the assessment year 1963-64. The Commissioner, the second respondent herein, while granting relief with regard to the imposition of penalty for the years 1960-61 to 1962-63, has however chosen to sustain the penalty for 1963-64 on the ground, 'As far as 1963-64 is concerned, it is found by the IAC that the additions on account of hundi credits should also include the addition on account of low gross profit. In regard to this year, therefore, it is not possible to accept the argument that no penalty should be levied. The petition for this year is, therefore, rejected'. Thus, the finding rendered by the first and second respondents in their respective orders is that the assessee had agreed for an addition towards the low gross profit. This finding has not been challenged before us in this writ petition. But what is contended by the learned counsel for the petitioner is that he agreed to the addition towards the low gross profit on condition that no penalty should be levied on the basis of the assessments. Excepting the said assertion of the learned counsel, there is nothing in writing to show that the petitioner agreed to the addition to the assessment towards the gross profit only on condition that no penalty should be levied. Even assuming that the petitioner imposed such a condition we do not see how such a condition could be given effect to. In the face of the statutory provision in Section 271(1)(c) once the deliberate concealment is found, the section will stand attracted and its applicability does not depend upon the consent or otherwise of the assessee.

5. Then the question is whether the assessee's consent for the additions made in the assessment as a result of the low gross profit shown in the accounts can lead to the inference that the assessee had deliberately concealed the particulars of income. A Division Bench of this court in Addl. CIT v. E. Bhoopathy [1978] 113 ITR 188 has taken the view that once the assessee agrees for an addition in the assessment without demur that can lead to the inference that he has concealed the particulars of income or filed an inaccurate return for that year. In that case also, the assessee was a contractor. As he did not maintain books of account for the concerned years he filed returns of income on the basis of his own estimates. The ITO on the basis of the statements of assets and liabilities filed by the assessee showing the position of his wealth, proceeded to estimate the income on the basis of 20% of the gross profit as against 15% returned bythe assessee. The assessee accepted the estimate made by the ITO and the assessment was completed on the basis of the acceptance. Thereafter, the penalty proceedings were initiated. When the penalty proceedings were challenged before the Tribunal, the Tribunal set aside the order of penalty. The revenue challenged the Tribunal's order cancelling the penalty. This court expressed as follows :

'In the present case, the assessee himself had accepted the estimate at 20 per cent. as made by the Income-tax Officer. The assessee has not also been able to show that his own estimate was a bona fide or proper estimate. In these circumstances, there is clear scope for the finding that the assessee had concealed the particulars of income in these three years or filed the inaccurate particulars thereof for these three years. The difference between the assessed income and the income as returned by the assessee would represent the concealment. In view thereof the penalty as levied for these three years could not have been properly cancelled by the Tribunal. In this view, we do not consider it necessary to go specifically into the applicability of the explanation for each of these years.'

6. In A. K. Bashu Sahib v. CIT : [1977]108ITR736(Mad) , it had been observed by this court that it cannot be said that in all cases where the taxing authorities estimated the income at a figure higher than that estimated by the assessee, no penalty was leviable and that where the estimate of the assessee amounts to a deliberate understatement, an inference of concealment of income could certainly be drawn. In that case, the assessee, a bus operator, maintained accounts. But he did not produce them before the income-tax authorities who estimated his income, rejecting the income as returned by the assessee based on the estimates of income made by the Appellate Tribunal for the earlier years. After completion of the assessment, penalty proceedings were initiated and in those proceedings it was contended by the assessee that no concealment of income or furnishing of inaccurate particulars by the assessee had been proved. This contention having been negatived by the Tribunal, the matter came up to this court on a reference. This court held that when the assessee who must have been aware of his real income estimated his income for the assessment years in question deliberately at a lower amount, he should be taken to have deliberately concealed his true income and this will attract Section 271(1)(c).

7. The learned counsel for the petitioner seeks to distinguish the said decisions of this court by contending that the petitioner has not made any estimate of his income in his return, but he has filed a return on the basis of his account books which he has maintained in the regular course of business, and that the ITO while completing the assessment did not reject the same as not reliable. But a perusal of the order of the ITO indicatesthat he was not inclined to accept the entries in the account books as genuine. He specifically says that the entries in the account books are not possible of verification in the absence of necessary vouchers, etc., and that apart from this the gross profit shown by the assesses was too low to be accepted. The ITO, therefore, made an addition of 1/3rd of the gross value and the assessee accepted without demur that addition. The acceptance of this addition before the completion of the assessment will lead to an inference that the gross profits shown by the assessee in his books of account are low and this was done deliberately. We are, therefore, of the view that in this case, the inference drawn by the respondents that the assessee should be taken to have deliberately concealed the particulars of income by his conduct in agreeing to the addition being made to his income is justified. We, therefore, see no reason to interfere with the impugned order. The writ petition, therefore, fails and is dismissed. No costs.


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