V. RAMASWAMI J. - The assessee is a bus operator. For the assessment year 1957-58, he returned a loss of Rs. 24,536. In this return, he had estimated the income from 15 buses owned by him at Rs. 8,000 per bus on the basis of the income determined by the Income-tax Appellate Tribunal for the assessment year 1956-57. When he was called upon to produce his accounts by notice under section 22(4) of the Act, the assessee denied the maintenance of any accounts and did not even produce the trip sheets, invoices and correspondence with the regional transport authorities. The assessee was maintaining some sort of account uptill March 31, 1954. But even these accounts were not accepted by the department in the relevant assessment years. By an order of assessment dated March 31, 1958, the Income-tax Officer estimated the total income on the basis of increase in the wealth and determined the income of the assessee at Rs. 2,88,683 at the rate of Rs. 19,245 per bus. Though the Appellate Assistant Commissioner held on the facts that the computation of income on the basis of the net wealth would not be correct having regard to the results admitted by other bus operators and the seating capacity of the buses plied by the assessee, he upheld the Income-tax Officers estimate.
For the assessment year 1958-59, corresponding to the previous year ending March 31, 1958, the assessee filed a return on December 17, 1958, showing a business loss of Rs. 37,779. This was filed by him on the basis of estimated increase in wealth during the relevant accounting year. For this year also, the assessee denied having maintained any accounts. The Income-tax Officer was of the view that the income had to be computed on an estimated basis having regard to the following factors, namely, the importance of the routes sanctioned to the assessee from a financial point of view, the passenger traffic that could normally be expected in the routes sanctioned to the assessee, the method adopted by the assessee to augment his revenue by resorting to the over-loading, etc., the seating capacity of buses plied by the assessee in various routes and the probable collection that could have been made by these buses and the results disclosed by the other bus operators of the type of the assessee, etc. He estimated the income at Rs. 22,000 per bus. This was confirmed by the Appellate Assistant Commissioner. There were appeals to the Appellate Tribunal in respect of these two years. The Tribunal fixed the income at Rs. 15,000 per unit per bus for 1957-58 and at Rs. 17,500 for 1958-59. As per these estimates, the income from buses came to Rs. 76,215 for 1957-58 and Rs. 1,04,990 for 1958-59.
The Income-tax Officer initiated penalty proceedings under section 28(1) (c) of the Indian Income-tax Act, 1922, for alleged concealment of income in both the assessment years. In reply to the penalty notice, the assessee contended that so far as the assessment year 1957-58 was concerned, his return of income was based upon the income as determined by the Tribunal for the assessment year 1956-57, namely, Rs. 8,000 per bus, and so far as the return of income for the assessment year 1958-59 is concerned it was based upon the increase in the wealth of the assessee as was done by the Income-tax Officer in estimating the income for the assessment year 1957-58. He further contended that an error was possible in any estimate and that no inference of deliberate concealment of income could be drawn by the difference in the estimate of the assessee and that of the taxing authorities. The Income-tax Officer did not accept this explanation and held that different methods at different times had to be employed only to find out the real income of the assessee and that, in the circumstances, the assessees explanation that the change in the method of computation did not constitute concealment was without force and could not be accepted.
He, therefore, levied a penalty of Rs. 45,000 for the assessment year 1957-58 and Rs. 60,000 for the assessment year 1958-59. The assessee appealed to the Appellate Assistant Commissioner and contended that in the absence of accounts, the assessee had estimated his income on the basis of the assessments made in the earlier years and that merely because the Income- tax Officer estimated the income adopting a different method, it did not justify the conclusion that the assessee had concealed his income. He also contended that the penalty levied against him was excessive. The Appellant Assistant Commissioner observed that it was doubtful if a charge of wanton concealment could be laid against the assessee. But, at the same time, he was satisfied that penalty was justified in a case like this because a random estimate, without any proper basis, may amount to furnishing of inaccurate particulars of income. He, however, reduced the penalty to Rs. 10,000 for each of the assessment years. On a further appeal, while disagreeing with the view of the Appellate Assistant Commissioner on the question whether there was any concealment of the income or whether it amounted only to furnishing of inaccurate particulars of income, the Tribunal held that in a case where the assessee has returned his income on the basis of an estimate, there was no question of his furnishing inaccurate particulars of his income and if it was satisfactorily proved that the assessee had deliberately under-estimated his income then it would amount to concealment of his income by the assessee. On the merits, the Tribunal also held that the charge of concealment had been amply proved by the facts and circumstances in this case. The Tribunal ultimately confirmed the penalty of Rs. 10,000. On the rejection of his application to refer a question to this court, the assessee filed an application to this court and in pursuance of an order of this court, an identical question in respect of both the years is referred and that reads as follows :
'Whether, on the facts and in the circumstances of the case, the levy of penalty of Rs. 10,000 is justified ?'
The learned counsel for the assessee contended before us that the assessee had not maintained any accounts for his income, that he had estimated the income either on the basis of the income fixed by the Tribunal in the earlier year or on the basis of the increase in his net wealth, as had been done by the Income-tax Officer in the case of the subsequently year and that no concealment of income could be inferred from the difference in the estimates of the assessee and the income as ultimately determined by the assessing authorities. While thus estimating, according to the learned counsel, the assessees mind was inert and no deliberate or wanton concealment or furnishing of inaccurate particulars could be levelled against him. In this connection, the learned counsel for the assessee also relied on a decision of the Gujarat High Court reported in Commissioner of Income-tax v. S. P. Bhatt : 97ITR440(Guj) . In that case, the facts were thus : The assessee, a registered firm carrying on business as a retail dealer in medicinal drugs and preparations, submitted a return for the assessment years 1964-65 and 1965-66 which showed its profit at 5 per cent. and 7.9 per cent. of the total sales respectively. The Income-tax Officer considered that though the books of account were maintained by the assessee according to the mercantile method of accounting, it was not possible to accept the figure of profit appearing from the books of account because, in the first place, no quantitative stock account was maintained by the assessee, secondly, a majority of the sales were not supported by vouchers and, thirdly, the gross profit disclosed by the books of account was low. Best judgment assessment followed this finding. Since the income returned was less than eighty per cent. of the total estimated income assessed in the assessment years, the Income-tax Officer was of the view that the Explanation to section 271(1)(c) was attracted and issued show-cause notices to the assessee under section 271(1)(c) to the Income-tax Act, 1961, and in view of the fact that the minimum penalty imposable exceeded a sum of rupees one thousand, he referred the case to the Inspecting Assistant Commissioner under section 234. The Inspecting Assistant Commissioner, after issuing fresh notices, held that the assessee had not proved that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on its part and accordingly imposed a penalty of Rs. 5,000 for each of the assessment years. On a further appeal, the Tribunal was of the view that mere absence of quantitative details and sales vouchers in majority of cases were not sufficient to justify the finding of any gross or wilful neglect on the part of the assessee. In that view, the Tribunal allowed the appeal and set aside the orders of penalty. The Explanation to section 271(1)(c), which was relied on by the Inspecting Assistant Commissioner in levying penalty, provided that where the total income returned by any person is less than eighty per cent. of the total income as assessed under section 143 or 144 or 147, such person shall unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purpose of clause (c) of that sub-section. The question, therefore, for consideration was whether the failure to return the total assessed income has not arisen on account of any fraud or any gross or wilful neglect on the part of the assessee. On a reference, agreeing with the finding of the Tribunal that there was no fraud or gross or wilful neglect on the part of the assessee, the High Court observed - See : 97ITR440(Guj) :
'Here it is significant to note that the difference between the returned income and total assessed income was entirely due to the fact that the Income-tax Officer estimated the profits supposed to have been earned by the assessee. The Income-tax Officer found it difficult to accept the figure of profit appearing from the books of account maintained by the assessee because no quantitative stock account was maintained, a majority of sales were not supported by vouchers and the gross profit disclosed in the books of account appeared to him to be low. It was not the case of the Income-tax Officer that any particular entries in the books of account were false or any particular items of purchase or sale were omitted to be entered in the books of account. It was only because the figures of profit appearing in the books of account could not be verified by him on account of lack of maintenance of proper verificatory records that the Income-tax Officer estimated the sales and applied a percentage of 7 1/2 per cent. to sales to doctors and a rate of 12 1/2 per cent. to the other sales. it is quite possible that if proper verificatory records had been maintained by the assessee, the income returned might have been accepted as the correct income by the Income-tax Officer. These records might have shown that the accounts maintained by the assessee were correct and reflected the correct income. It is difficult to see how in these circumstance where assessment of total income is made on the basis of estimate, it can be said that the failure to return the total assessed income was on account of fraud or gross or wilful neglect on the part of the assessee and, if that be so, it must follow by necessary implication that the failure to return the total assessed income was not on account of any fraud or gross or wilful neglect on the part of the assessee and, if that be so, it must follow by necessary implication that the failure to return the total assessed income was not on account of any fraud or gross or wilful neglect on the part of the assessee. The burden which lies upon the assessee must be taken in such a case to be discharged so as to repel the applicability of the legal fiction enacted in the Explanation.'
Dealing with the argument of the revenue that even in the prior years the defects were pointed out, but the assessee persisted in not maintaining proper verificatory records and that this constituted gross or wilful neglect on the part of the assessee, the High Court observed - See : 97ITR440(Guj) :
'It proceeds on the assumption that if accounts had been properly maintained by the assessee, they would have disclosed the total income as assessed and in that event there would have been no failure on the part of the assessee to return the total assessed income. This assumption is not well-founded. It is clear law that neglect postulates breach of duty to take care and there is clearly no duty on the assessee to maintain books of account, he runs the risk of best judgment assessment and in a best judgment assessment, it is quite possible that the total income assessed by the Income-tax Officer may be more than the income earned by the assessee. But, apart from this risk of enhanced assessment which the assessee runs, there is nothing in the law of income-tax which says that books of account shall be maintained by an assessee on pain of penalty. Since there is no duty laid by the income-tax law on the assessee to maintain books of account, failure to maintain books of account cannot be said to constitute neglect. But this does not mean that the assessee can escape liability if he maintains false or incorrect accounts. If the assessee maintains books of account, he is under an obligation to see that the accounts shown in the books of account are correct. There would clearly be neglect on the part of the assessee if he maintains accounts which are false or incorrect and on the basis of such false or incorrect accounts he returns income which is not found to be the correct income. But, here, in the present case, there is nothing to show that the accounts maintained by the assessee were false or incorrect. The Income-tax Officer did not find that any particular entries in the books of account were not genuine or any particular items of purchase or sale were omitted to be entered in the books of account. The only grievance of the Income-tax Officer was that in the absence of proper verificatory records, it was not possible to verify the figures of profit appearing in the books of account and hence he was not in a position to accept the income returned by the assessee. There was no obligation on the assessee to maintain any verificatory records so that lack of maintenance of such records could be regarded as neglect on the part of the assessee. The assessee could tell the Income-tax Officer that the accounts maintained by it were correct and they reflected the correct profit. The Income-tax Officer might very well say that, in the absence of proper verificatory records, he would not accept the figures of profit appearing in the books of account and make best judgment assessment by making an estimate but from that it does not follow that the accounts maintained by the assessee were false or incorrect or that the income returned by the assessee was not the correct income. Moreover, as pointed out above, it is quite possible that if proper verificatory records had been maintained, they would have shown that the accounts maintained by the assessee were correct and the income returned was the correct income. Failure to return the total assessed income could not, therefore, be said to be due to non-maintenance of proper verificatory records by the assessee.'
We are unable to agree that this decision, in any way, helps the assessee in the present case in his contention that since he was not maintaining any account, he was estimating the income and that could not lead to any finding of wilful concealment or furnishing of inaccurate particulars. Under the provisions of the Act, an assessee is under an obligation to file a true return. Penalty for not filing a true return is provided under section 28 of the old Act. This is a case where there could be no doubt that there was an income. It fact, it was not the case of the assessee that there was no income. Only the quantum of income was in dispute. The assessee had not been maintaining any account at all according to him. He was owning as many as 15 buses during both the relevant assessment years. The income, therefore, must have been considerable and in the usual course one would expect a bus operator of the status of the assessee to maintain accounts. The assessee did not even produce the trip sheets, invoices and correspondencs with the regional transport authorities when he was specifically required to do so under section 22(4) of the Act. In fact, the finding of the Tribunal was that the assessee did maintain accounts, but head chosen to withhold them from the department as he found it more advantageous to obtain an assessment on the basis of an estimate of his income. Further, what is required by law is an estimate of the actual income. But what the assessee did in both the years was to estimate an income on the basis of either estimate of the income or on the basis of the increase in the net wealth. The assessee knew that the methods adopted by him did not reflect his real income. He must have been aware of his real income. But still he estimated his income for the assessment years. As stated by the Tribunal, the question was not whether the assessee, in estimating his income, followed a particular method according to the method followed by the Income-tax Officer. The real question is whether the assessee was in a position to know his real income, but deliberately estimated it at a lower amount. The assessee had conceded in the proceedings that progressively better buses had been placed in the more paying routes, that the overall seating capacity had been increased during the years 1957-58 and 1958-59 and there had been progressive increase in the commissioning of a large number of buses of the 40 to 45 seating capacity group in the relevant assessment years. In the face of these admissions, the assessee must have been perfectly aware that his real income during the two assessment years was more than the earlier year 1956-57. In fact, the assessee did not say at any time in the penalty proceedings that Rs. 8,000 per bus was the correct income in 1957-58 or the income arrived at on the basis of increase in wealth in 1958-59 was the correct income. We are also unable to agree with the argument that in all cases where the taxing authorities estimated the income at a higher figure than what was estimated by an assessee, no penalty was leviable. Where the estimate of the assessee amounts to deliberate under-estimate, an inference of concealment of income could certainly be drawn. The facts in the present case clearly show that the assessee had deliberately under-estimated his income in the two years under appeal. We also agree with the Tribunal that this is not a mere case of furnishing of inaccurate particulars of income but it amounts to a concealment of the income of the assessee. We, accordingly, answer the reference in the affirmative and against the assessee, with costs. Counsels fee Rs. 250.