Sethi Pen Stores v. Commissioner Of Income-Tax — 1991 DIGILAW 149 (CAL)

JUDGMENT Shyamal Kumar Sen, J. 1. IN this reference under Section 256(2) of the Income-tax Act, 1961, the following questions have come up for determination : "1. Whether there was any material or evidence before the Tribunal to justify that the sum of Rs. 55,971 represented concealed Income of the appellant-firm and whether the order of the Tribunal is otherwise unreasonable and perverse ? 2. WHETHER the Tribunal was right in holding that the Explanation to Section 271(1)(c) of the Income tax Act, 1961, applied in this case and that the assessee failed to discharge the onus that lay upon it under the said Explanation ?" 2. The facts, inter alia, are that the assessee is a registered partnership firm. The assessment year involved is 1972-73 relevant to the accounting year ending on December 31, 1971. For the aforesaid year, the assessee filed its return declaring a total Income of Rs. 25,450 on July 31, 1972. During the course of assessment proceedings, the Income-tax Officer found that in each of the two partners' accounts a sum of Rs. 56,735.50 stood credited. The assessee explained that the above sum represented the amount which the assessee was entitled to introduce in its hooks of account as per the settlement made with the Commissioner of Income tax on December 29, 1970, under Section 271(4A) of the Income tax Act. The assessee had filed a petition under Section 271(4A) to the Commissioner for the assessment years ,1960-61 to 1965-60 disclosing a sum of Rs. 1,15,000 representing certain hundi loans and a settlement as detailed in the order of the Commissioner was arrived at. Clause 7 of the terms of the above settlement is as follows : "The assessee shall be allowed to introduce in its hooks of account 50 per cent, of the disclosed amount or an amount equivalent to the tax and penalty liabilities arising as a result of the settlement, whichever is higher." Before the Income-tax Officer, the assessee claimed that an amount of Rs. 1,13,471 was introduced and credited in the accounts of the partners as per the above settlement. The Income-tax Officer was, however, not satisfied with the explanation given by the assessee, He hold that only a sum of Rs. 57,500 which was greater than Rs. 56,962 representing the total tax cum-penalty liabilities arising on settlement under Section 271(4A) could be introduced in the books of account. The Income-tax Officer was, however, not satisfied with the explanation given by the assessee, He hold that only a sum of Rs. 57,500 which was greater than Rs. 56,962 representing the total tax cum-penalty liabilities arising on settlement under Section 271(4A) could be introduced in the books of account. He allowed the benefit of the above amount and added the balance of Rs. 57,500 as the Income of the assessee from undisclosed sources. 3. BEING aggrieved, the assessee preferred an appeal before the Appellate Assistant Commissioner who held that the Income-tax Officer had mis-appreciated the assessees explanation and deleted the said addition. 4. BEING dissatisfied with the said order of the Appellate Assistant Commissioner, the Revenue preferred an appeal to the Appellate Tribunal and the Tribunal restored the said addition made by the Income tax Officer. The Tribunal, in its order, observed as under : "We entirely agree with the learned Departmental representative that the working of the settlement order, in so far as it relates to the amount which the assessee was permitted to introduce under the agreement, is clear and unambiguous. The assessee could introduce either a sum of Rs. 57,500 or the aggregate of the tax and penalties arising out of the settlement, whichever was higher. The working of the relevant term does not, in our opinion, leave scope for any other interpretation. As has been rightly contended by the learned Departmental representative, the decision of the Appellate Assistant Commissioner on this point is tantamount to a rewriting of the agreement between the parties. We accordingly have no hesitation in reversing the decision of the Appellate Assistant Commissioner on this point and restoring that of the Income-tax Officer." The Income-tax Officer also initiated proceedings under Section 271(1)(c) read with Section 274(2) of the Income-tax Act and referred the matter of imposition of penalty to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner, as per order dated May 30, 1979, imposed a penalty of Rs. 55,971. 5. BEING aggrieved by the order of the Inspecting Assistant Commissioner, the assessee preferred an appeal before the Appellate Tribunal. As per their order, the Tribunal upheld the levy of penalty and dismissed the appeal. 6. THE assessee thereafter made an application under Section 256(2) of the Income-tax Act whereupon the aforesaid questions have come up for determination. 55,971. 5. BEING aggrieved by the order of the Inspecting Assistant Commissioner, the assessee preferred an appeal before the Appellate Tribunal. As per their order, the Tribunal upheld the levy of penalty and dismissed the appeal. 6. THE assessee thereafter made an application under Section 256(2) of the Income-tax Act whereupon the aforesaid questions have come up for determination. We, however, reframe question No. 1 as follows : "(1) Whether there was no material or evidence before the Tribunal to justify that the sum of Rs. 55,971 represented concealed Income of the appellant-firm and whether the order of the Tribunal is otherwise unreasonable and perverse ? " 7. IT has been argued on behalf of the assessee that there is no lack of bona fides on the part of the assessee and, when two views are possible on the interpretation of the settlement dated December 29, 1970, the assessee should get the benefit thereof and further that there is no wilful breach of the provisions of law and, therefore, penalty proceedings cannot be initiated and no penalty can be levied against the assessee. 8. IT has been further submitted on behalf of the assessee that there was no material or evidence before the Tribunal to justify that the sum of Rs. 55,971 represented concealed Income of the appellant-firm and the order of the Tribunal in that respect is liable to be set aside. Learned advocate for the assessee in this connection, relied upon the following decisions : Hindustan Steel Ltd. v. State of Orissa. CIT v. Nuruddin and Brothers.; CIT v. Mussadilal Ram Bharose. Learned advocate for the Revenue on the other hand submitted that the Income returned is admittedly less than 80 per cent, of the Income assessed and as such the Explanation to Section 271(1)(c) is clearly attracted. It also submitted that the assessee failed to discharge the onus or to show that this failure is not due to any gross or wilful neglect. Learned advocate for the Revenue further submitted that the assessee filed a disclosure petition under the voluntary disclosure scheme and under the settlement order of the Commissioner of Income-tax dated December 29, 1970, The assessee was allowed to introduce in its books of account 50 per cent, of the disclosed amount, i.e., Rs. 57,500, being 50 per cent, of Rs. Learned advocate for the Revenue further submitted that the assessee filed a disclosure petition under the voluntary disclosure scheme and under the settlement order of the Commissioner of Income-tax dated December 29, 1970, The assessee was allowed to introduce in its books of account 50 per cent, of the disclosed amount, i.e., Rs. 57,500, being 50 per cent, of Rs. 1,15,000 or an amount equivalent to the tax and penalty liability arising as a result of the settlement, whichever is higher. The assessee, however, contrary to the said settlement, introduced Rs. 1,13,471 by crediting the accounts of its partners by a sum of Rs. 57,375.50 each and thereby the assessee has thus wrongfully introduced in the capital accounts of its partners the excess sum of Rs. 55,971 which represents the assessee's undisclosed Income by wrongful capitalising of the same in its books of account. He also submitted that the decisions relied upon by learned counsel for the assessee have no application in this case. Learned advocate for the Revenue also relied upon the decision of the Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 ; [1987] Tax LR 469. 9. WE have considered the respective submissions of the parties and the decisions cited and we are unable to accept the contention of the assessee in the instant case. Admittedly, the assessee returned an Income of Rs. 25,450 and the Income tax Officer finally assessed the Income at Rs. 85,409. Therefore, the Income returned is admittedly less than 80 per cent, of the Income assessed and as such the Explanation to Section 271(1)(c) of the Income-tax Act is clearly attracted. The assessee failed to discharge the onus or to show that this failure was not due to any gross or wilful neglect. Moreover, in this case, the assessee filed a disclosure petition under the voluntary disclosure scheme and under the settlement order of the Commissioner of Income-tax dated December 29, 1970, the assessee was allowed to introduce in its books of account 50 per cent, of the disclosed amount, that is, Rs. 57,500 (being 50 percent, of Rs. 1,15,000) or an amount equivalent to the tax and penalty liability arising as a result of settlement, whichever was higher. The assessee, however, contrary to the said settlement, introduced Rs. 1,13,471 by crediting the accounts of its partners by a sum of Rs. 57,375.50 each. 57,500 (being 50 percent, of Rs. 1,15,000) or an amount equivalent to the tax and penalty liability arising as a result of settlement, whichever was higher. The assessee, however, contrary to the said settlement, introduced Rs. 1,13,471 by crediting the accounts of its partners by a sum of Rs. 57,375.50 each. The assessee under the said order of the Commissioner of Income-tax dated December 29, 1970, can introduce either Rs. 57,500 or the aggregate of the lax and penalty arising out of the settlement, whichever was higher. In this case, it was Rs. 57,962. The assessee has thus wrongfully introduced in the capital accounts of its partners the excess sum of Rs. 55,971 which represents the assessee's undisclosed Income by wrongful capitalising of the same in its books of account. 10. THIS act of the assessee in capitalising the excess sum of Rs. 55,971 clearly amounts to an act of gross or wilful neglect. The assessee failed to discharge the onus of proving that there was no wilful neglect in capitalising the said sum and no two views are possible on the interpretation of the clear and unambiguous order of the Commissioner of Income tax dated December 29, 1970. In the quantum appeal also, the Tribunal by its order dated September 11, 1978, i.e., Income-tax Application No. 1631/(Cal) of 1977-78, sustained the addition. The decisions relied upon by learned counsel for the assessee have no application in this case because, in these cases, the Explanation to Section 271(1)(c) was not attracted and, further, the case is distinguishable on facts. 11. IN the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 ; [1987] Tax LR 469, it was held by the Supreme Court that if the returned Income is less than 80 per cent, of the assessed Income, a presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect and as a result of which he has concealed the Income but this presumption can be rebutted. The rebuttal must be on material relevant and cogent and it has been further held that, if the fact finding body bearing the aforesaid principles in mind comes to the conclusion that the assessee has discharged the onus, it being a conclusion of fact, no question of law arose. The rebuttal must be on material relevant and cogent and it has been further held that, if the fact finding body bearing the aforesaid principles in mind comes to the conclusion that the assessee has discharged the onus, it being a conclusion of fact, no question of law arose. The Supreme Court further held that it is not the law that any and every explanation by the assessee must be accepted. It must be an acceptable explanation, acceptable to a fact-finding body. 12. IN the case of CIT v. Mussadilal Ram Bharose, the facts, inter alia, are that for the assessment year 1965-66, the Income returned by the respondent, a licensed vendor of country liquor, was rejected by the Income-tax Officer on the ground that the sales and expenses were not verifiable and the margin of profit shown was also low. The Income-tax Officer accordingly estimated the sales and applied a net profit rate of 8 per cent, and arrived at a total Income of Rs. 60,936 against the returned Income of Rs. 30,138. The Tribunal; on appeal, reduced the total Income to Rs. 40,600 in the light of the licence fee paid by the respondent and the lower rate of profit in the cases of other liquor contractors. Penalty proceedings were initiated against the respondent under Section 271(1)(c) of the Income-tax Act, 1961, and the Inspecting Assistant Commissioner levied a penalty of Rs. 8,300. The Tribunal, however, cancelled the penalty holding that the respondent had maintained certain types of books of account and honestly believed them to be sufficient for the true ascertainment of its profits and that it could not be said that, in filing the return of Income as reflected in the books of account, the respondent was grossly or wilfully negligent, much less fraudulent. The Tribunal and the High Court rejected the Department's applications for a reference. On appeal to the Supreme Court, it was held accordingly, dismissing the appeal, that the Tribunal and the High Court had rightly rejected the Department's applications for a reference. The Tribunal's conclusion on relevant and sufficient material was that the respondent had discharged its onus to prove that the difference was not due to gross or wilful neglect or fraud, which was a conclusion of fact and no question of law arose. The Tribunal's conclusion on relevant and sufficient material was that the respondent had discharged its onus to prove that the difference was not due to gross or wilful neglect or fraud, which was a conclusion of fact and no question of law arose. The Tribunal had borne in mind the relevant principles of law and had also judged the facts on record. This was not a case where there was no evidence nor a case where no reasonable person could have accepted the explanation of the respondent. In our opinion, the aforesaid decision cannot be of any assistance to the assessee. In the instant case, there was sufficient evidence to justify that the sum of Rs. 55,971 represented the concealed Income of the assessee. 13. THE case of CIT v. Nuruddin and Bros. has no application to the facts of the instant case. In that case the facts are that the Income-tax Officer completed the assessment of the assessee for the assessment year 1960-61 on a total Income of Rs. 86,114. Thereafter, the assessee filed a disclosure petition under Section 271(4A) of the Income-tax Act, 1961, before the Commissioner on February 28, 1967, admitting that cash credits introduced in the books in various names in different years including the assessment year 1960-61 represented concealed Income which had not been disclosed in its returns. The Income-tax Officer initiated reassessment proceedings under section 147(a) on the basis of the admission made by the assessee in the disclosure petition and assessed the peak of the cash credits including the interest paid thereon as the Income of the assessee. The Income-tax Officer also initiated penalty proceedings for concealment of Income under Section 271(1)(c) and, as the minimum penalty exceeded Rs. 1,000, referred the matter under Section 274(2) to the Inspecting Assistant Commissioner, who imposed penalty on the assessee. THE Tribunal cancelled the penalty on the ground that since the assessee disclosed the Income to the Department on its own volition, there was no concealment of Income by the assessee. It was held, on a reference by the Division Bench of this court, that having regard to the disclosure petition filed under Section 271(4A), the Tribunal was right in holding that no penalty under Section 271(1)(c) was leviable on the assessee. 14. THE facts in the instant case are different and, as such, the judgment and decision in the aforesaid case cannot have any application. 14. THE facts in the instant case are different and, as such, the judgment and decision in the aforesaid case cannot have any application. In the case of Hindustan Steel Ltd. v. State of Orissa, the facts, inter alia, are that the company supplied building material to contractors at agreed rates. There was concurrence of the four elements which constitute a sale, (1) the parties were competent to contract; (2) they had mutually assented to the terms of the contract ; (3) absolute property in the building material was agreed to be transferred to the contractors ; and (4) price was agreed to be adjusted against the dues under the contract. No serious argument was advanced that the supply of building material belonging to the company for an agreed price did not constitute a sale. 15. UNDER the Act, penalty may be imposed for failure to register as a dealer under Section 9(1) read with Section 25(1)(a) of the Act. But the liability to pay penalty docs not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to curry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligations. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is proscribed, the authority competent to impose the penalty will be justified in refusing to impose the penalty when there is a technical breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out. 16. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out. 16. IN our opinion, the said judgment and decision in the aforesaid case will have no application to the facts of the instant case. Under such circumstances, there is no merit in the contention of the assessee. 17. QUESTION No. 1 as refrained is answered in the negative and in favour of the Revenue. 18. QUESTION No. 2 is answered in the affirmative and in favour of the Revenue.