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2006 DIGILAW 396 (KER)

The Commissioner of Income Tax v. R. Kesavan Nair

2006-07-07

K.S.RADHAKRISHNAN, V.RAMKUMAR

body2006
Judgment :- Radhakrishnan, J. Commissioner of Income-tax has come up with this appeal aggrieved by the order of the Income-tax Appellate Tribunal, cochin Bench in I.T.A. No.650/Coch/95. Three question of law have been raised for our consideration, which we have re-drafted and consolidated as follows: Whether, on the facts and in the circumstances of the case, the Tribunal was justified in interfering with the imposition of penalty by the Assistant Commissioner of Income-tax under Section 271(1)(c) of the Income-tax Act in the light of the decision of the apex court in Shadilal Sugar and General Mills Ltd v. C.I.T. (168 I.T.R. 705)? Assessee filed his return of income on 13.11.1991 showing loss of Rs.2,43,440/- after adjusting depreciation of Rs.3,30,538/-. Search was conducted in the residential and business premises of the assessee on 21.08.1999 under section 132 of the Act. During the course of search certain books of accounts were seized. Assessee was maintaining accounts in respect of the business of liquor of which the income declared was only Rs.40,000/- on estimate basis. Assessee’s main source of income was from restaurant and lodging complex, income from Kesuram Wines and incentive from M/s Star Agencies, Ernakulam. Assessing officer after verifying the seized books of accounts; had sent a proposal on 20.11.1992 requiring the assessee to file objection, if any, in adopting the income of Rs.3,45,643/-. Assessee filed reply on 24.02.1993 wherein it was sated that there were some mistakes in the profit and loss accounts prepared by the assessing officer and hence the net profit should be recomputed. However, the assessee withdrew the various objections and agreed for the adoption of Rs.3,45,643/- as income from liquor business as seen from the letter dated 22.03.1993. Assessee also requested that no penalty be levied. 2. The assessing officer however completed the assessment by assessment order dated 31.3.1993 and also initiated penalty proceedings under section 271(1)(c) of the Act. Penalty proceedings were later completed by proceedings dated 10.09.1993 whereby penalty of Rs.1,38,675/- was imposed. Aggrieved by the same, assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals) and the appeal was dismissed holding that the assessee had deliberately concealed the details of income from liquor business and therefore levy of penalty was confirmed. 3. Assessee then took up the matter before the Income Tax Appellate Tribunal. Aggrieved by the same, assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals) and the appeal was dismissed holding that the assessee had deliberately concealed the details of income from liquor business and therefore levy of penalty was confirmed. 3. Assessee then took up the matter before the Income Tax Appellate Tribunal. Placing reliance on the decision of the Madras High Court in Commissioner of Income-tax v. Adamkhan (1997) 223 ITR 264) and also the decision of the Supreme Court in Sir Shadilal Sugar and General Mills Ltd v. C.I.T. (1997) 168 I.T.R. 705) Tribunal took the view hat there was no reason to initiate penalty proceedings and interfered with the penalty proceedings holding that in the absence of any reasonable ground penalty proceedings could not be initiated. Aggrieved by the same this appeal has been preferred by the Revenue. 4. Sri P.K. Ravindranatha Menon, Senior Standing Counsel for the Income-tax Department submitted that the Tribunal has not properly appreciated the scope and ambit of Section 271(1)(c) of the Act. Counsel submitted that the reasoning of the Tribunal is against the well settled legal position. Counsel referred to the decision of this court in Commissioner of Income-tax v. K.P. Madhusudanan (2000) 246 I.T.R. 218) which was affirmed by the apex court in Madhusudhanan v. C.I.T. (2001) 251 ITR 99). Reference was also made to the decisions of this court in Deputy Commissioner of Income-tax v. K. Sureshkumar (2002) 253 I.T.R. 640) and Commissioner of Income-tax v. A. Sreenivasa Pai (2000) 242 I.T.R. 29) and other connected cases. 5. Counsel appearing for the assessee on the other hand contended that there is no reason to interfere with the order passed by the Tribunal. Counsel submitted that the assessing authority has not properly appreciated the letter dated 5.4.1993 as well as the lawyer’s notice dated 22.3.1993. Counsel submitted that the assessee sought for waiver of the penalty so as to make good the several loss. Later assessee agreed to the proposal to estimate the income from liquor business at Rs.3,45,643/- subject to the conditions mentioned in the said letter. Counsel placed reliance on the decision of the Madras High Court in Adamkhan’s case, supra (223 I.T.R. 264) and also the decision of the Supreme Court in Sir Shadilal Sugar and General Mills’ case, supra (168 ITR 705). Counsel placed reliance on the decision of the Madras High Court in Adamkhan’s case, supra (223 I.T.R. 264) and also the decision of the Supreme Court in Sir Shadilal Sugar and General Mills’ case, supra (168 ITR 705). Reference was also made to the decision of the Calcutta High Court in Commissioner of Income-tax v. Sarda Rice & Oil Mills (1979) 117 I.T.R. 917). 6. The scope of Section 271 (1) (c) was considered by this court in K.P. Madhusudanan’s case, supra (246 I.T.R. 218) and the said decision was affirmed by the apex court in K.P. Madhusudanan’s case, (251 I.T.R. 99). We may examine the facts of this case in the light of the settled legal position and decide as to whether the Tribunal was justified in interfering with the order of penalty. This is a case where the proceeding was initiated against the assessee after conducting a search in his residential and business premises under Section 132 of the Income-tax Act and also verifying the books of accounts. After verifying the seized documents a pre-assessment proposal was sent on 20.11.1992 requiring the assessee to furnish his objection, if any, in determining the business income of Kesuram Wines at Rs.3,45,643/-. Assessee was also requested to produce evidence in support of the various receipts shown therein. The assessee submitted a reply on 24.2.1993. It is stated therein that the additional income estimated from liquor business should be treated as utilized for meeting the difference in the cost of construction of the new building. Subsequently it is seen that the assessee withdrew those objections and agreed to estimate the income from liquor business as evident from the letter dated 22.03.1993 sent by the assessee’s advocate. The letter is extracted below for easy reference. 22nd March, 1993 The Assistant Commissioner of Income-tax, Investigation Circle, TRIVANDRUM Sir, Sub: Income-tax Assessment of Shri R. Kesavan Nair, Kesuram Buildings, Pongummoodu, Trivandrum Asst. Year 1989-90 Ref: File No Px-2369/AC.Inv./TVM ­-------------------------------------------------------- This has reference to the discussion the undersigned has with you today. The letter is extracted below for easy reference. 22nd March, 1993 The Assistant Commissioner of Income-tax, Investigation Circle, TRIVANDRUM Sir, Sub: Income-tax Assessment of Shri R. Kesavan Nair, Kesuram Buildings, Pongummoodu, Trivandrum Asst. Year 1989-90 Ref: File No Px-2369/AC.Inv./TVM ­-------------------------------------------------------- This has reference to the discussion the undersigned has with you today. In order to make a final settlement with regard to the tax liability of my client Shri R. Kesavan Nair and to purchase peace for him, I agree to you proposal to estimate the income from liquor business at Rs.3,45,643/- and to treat the loan of Rs.1,20,000/- from his wife T. Saraswathy Amma as unexplained income, subject to the following: i) The additional income estimated from liquor business as above is treated as utilized for meeting the difference in cost of construction of the new building as found by the valuation officer and as declared by the assessee. ii) No penalty is levied. Thanking You, Yours faithfully, Sd/- (K.K. Aiyappan Pillai) Above mentioned letter would show that the assessee was agreeable to the proposal to estimate the income from liquor business at Rs.3,45,643/- and to treat the loan of Rs.1,20,000/- from wife as unexplained income. It was also requested that the additional income estimated from the liquor business be utilized for meeting the difference in cost if construction of the new building as found by the Valuation Officer and that no penalty be imposed. Assessing officer however completed the assessment determining the income at Rs.1,34,220/- after adjusting the depreciation of Rs.3,78,522/- and penalty proceedings under Section 271(1)(c) were initiated and in response to the notice issued under section 274 read with Section 271 (1)(c) and the minimum penalty was fixed at Rs.1,38,675/- was imposed under Section 271(1)(c) of the Act. 7. Counsel appearing for the assessee placed considerable reliance on the assessment order and submitted that the assessing authority has accepted the explanation submitted by the assessee and after having accepted the explanation there is no justification in imposing the penalty. We have gone through the assessment order and the letter submitted by the assessee and his advocate. We are not prepared to say that the assessing authority had accepted the explanation given by the assessee. True, the assessee had made a request to drop the penalty, but that was not accepted by the assessing authority. We have gone through the assessment order and the letter submitted by the assessee and his advocate. We are not prepared to say that the assessing authority had accepted the explanation given by the assessee. True, the assessee had made a request to drop the penalty, but that was not accepted by the assessing authority. Going by the letter of the assessee as well as that of his counsel it is clear that the assessee had conceded concealment of income. Imposition of penalty is not dependent upon consent or otherwise of the assessee and not on the basis of agreement or concession. Penalty proceedings are penal in nature. Penalty can be imposed once concealment of income is noticed and unearthed. This legal position is well settled. Reference was made to the decision of the Madras High Court in Retnam & Co. v. I.A.C. (124 I.T.R. 376). The Tribunal proceeded as if the assessee’s offer was conditional if the assessee accepts certain additions with the belief that what was offered would be accepted with the condition and that the offer should be accepted either fully or rejected, which cannot be sustained. Tribunal in fact held that there should be positive evidence that the assessee had consciously concealed the particulars of income. The facts of the case, in our view, would lead to the conclusion that the assessee had consciously concealed the particulars of income. 8. The assessing officer has proceeded on the basis of the materials unearthed during the search. Reply given by the assessee as well as by the lawyer would clearly show that there was no objection regarding the estimation of the assessment made by the assessing officer. The only request was to make some adjustment and to waive the penalty, which was not acceptable to the assessing officer. We are of the view that the Tribunal has committed grave error in holding that there is no positive finding that assessee had concealed income. The facts would show otherwise. In such circumstances, we find it difficult to sustain the order of the Tribunal. Order of the Tribunal is set aside and the order of the Assistant Commissioner of Income-tax is restored.