COMMISSIONER OF INCOME-TAX VS AARKAY SAREE MUSEUM, 1992 PTD-BOMBAY-HIGH-COURT-INDIA 830 (1990)

(a) Income-tax---

----Penalty---Concealment of income---Law applicable to assessment-- Addition made to income for assessment year 1959-60 and assessment completed on 31-1-1964---Penalty proceedings under S.271(1)(c) of the Indian Income Tax Act of 1961 competent---Finding of Tribunal that concealment of income had not been proved---Cancellation of penalty valid.

The assessee-firm carried on business as exporter and importer of sarees, cotton and art silk yarn and art silk clothes. On February 2, 1960, the assessee firm voluntarily filed its return of income for the assessment year 1959-60 showing income of Rs.61,286. The Income Tax Officer passed the assessment order on January 31, 1964. The Income Tax Officer estimated the sales of imported goods made to the various parties as he was not satisfied with the correctness of the particulars disclosed in the books of account of the assessee. On the basis of such estimate addition was made to the gross profit in the sum of Rs.J5,528. This addition was confirmed by the Appellate Assistant Commissioner in appeal. The said addition was reduced by the Income-tax Appellate Tribunal to Rs.52,000. Penalty was imposed under S.271(1)(c) of the Act of 1961. The Tribunal cancelled the penalty on the ground that the Income Tax Officer had failed to prove that the assessee had concealed its income. On a reference:

Held. that the Tribunal had rightly held that merely because certain additions were made in the trading account by the Assessing Officer, it did not necessarily follow that the assessee had concealed its income. The cancellation of penalty was valid.

(b) Income-tax---

----Penalty---Constitutional validity of provisions---Section 297(2)(g) of the Indian Income Tax Act, 1961 valid

Section 297(2)(g) of the Indian Income Tax Act, 1961, does not offend Article 14 of the Constitution of India and is valid.

Jain Bros. v. Union of India (1970) 77 ITR 107 (SC) fol.

Shakti Offset Works v. IAC of I.T. and Mrs. Saroj Nayudu v. AAC of I.T. (1967) 64 ITR 637 (Bom.) held to be no longer good law.

G.S. Jetley, K.C. Sidhwa and Mrs. Manjula Singh for the Commissioner.

N.A. Dalvi instructed by Messrs Mulla and Mulla for the Assessee.

JUDGMENT

D.R. DHANUKA, J.---This is a reference under section 256(2) of the Income Tax Act, 1961, made at the instance of the Revenue pursuant to the order of this Court in Income-tax Reference No.18 of 1968 dated January 13, 1971. The question referred to us reads as under:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the penalty order?"

The relevant assessment year is 1959-60. The facts leading to the making of this reference are, as under:

The assessee was assessed to tax for the assessment year 1959-60 in the status of an unregistered firm. The assessee carried on business as exporter and importer of sarees, cotton and art silk yarn and art silk clothes. On February 2, 1960, the assessee-firm voluntarily filed its return of income for the assessment year 1959-60 showing income of Rs.61,286. The Income-tax Officer completed the process of assessment and passed his assessment order on January 31, 1964. The Income-tax Officer estimated the sales of imported goods made to various parties as he was not satisfied with the correctness of the particulars disclosed in the books of account of the assessee. On the basis of such estimate, an addition was made to the gross profit in the sum of Rs.95,528. This addition was confirmed by the Appellate Assistant Commissioner in appeal. The said addition was reduced by the Income-tax Appellate Tribunal to Rs.52,000 only.

On April, 1962, the Income-tax Act, 1961, came into force. Section 297(1) of the said Act provided that the Indian Income-tax Act, 1922, was thereby repealed.

Section 297(2)(g) of the Income-tax Act, 1961, reads as under:

"(2) Notwithstanding the repeal of the Indian Income Tax Act, 1922 (11 of 1.922) (hereinafter referred to as "the repealed Act"),---...

(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act."

In the instant case, the assessment for the assessment year 1959-60 was completed on March 31, 1964.

The Income Tax Officer concerned referred the question of penalty to the Inspecting Assistant Commissioner as he was of the view that the penalty imposable would exceed Rs.1,000. By his order, dated June 12, 1967, the Inspecting Assistant Commissioner imposed a penalty of Rs.22,220 on the assessee under section 271(1)(c) of the Act. Against the said order, the assessee preferred an appeal before the Income-tax Appellate Tribunal. Two contentions were urged before the Income-tax Tribunal. Firstly, it was contended on behalf of the assessee that the Income Tax Act, 1961, could not be invoked for the purpose of levy of penalty in respect of an alleged default pertaining to the assessment year 1959-60. The assessee relied upon the judgment of this Honourable Court in the case of Sakti Offset Works v. IAC of I.T. and in the case of Miss Saroj Nayudu v. AAC of I.T. (1967) 64 ITR 637, in support of his contention that section 297(2)(g) of the Indian Income Tax Act, 1961, was ultra vires Article 14 of the Constitution of India. It was also contended before the Tribunal on behalf of the assessee that, in any event, no penalty could be imposed on any view of the matter merely because of additions made in the trading account on the basis of estimated profit. The Income-tax Appellate Tribunal held that the order of penalty could not be passed by the Inspecting Assistant Commissioner in view of the decision of this Court in the case of Sakti Offset Works (1967) 64 ITR 637 referred to herein above. The Income-tax Appellate Tribunal further held that, on merits; there was no case for the imposition of penalty as the Income-tax Officer had not brought home the guilt of concealment to the assessee. By the said order, the penalty imposed by the Inspecting Assistant Commissioner was cancelled. Thus, on merits, the Tribunal held that the Assessing Officer had failed to prove that the assessee had concealed its income. The Tribunal held that no penalty was thus imposable for the alleged concealment. The Tribunal cancelled the order of penalty passed by the Inspecting Assistant Commissioner.

Shri Jetley, learned counsel for the Revenue, has invited our attention to the judgment of the Honourable Supreme Court in the case of Jain Brothers v. Union of India (1970) 77 ITR 107. In this judgment, the Honourable Supreme Court clearly held that section 297(2)(g) of the Income-tax Act, 1961, did not offend Article 14 of the Constitution of India and was not ultra vires. It is, therefore, obvious that the judgment of the Bombay High Court in the case of Shakti Offset Works (1967) 64 ITR 637 no longer holds the field and must be treated as overruled by the above-referred judgment, of the Honourable Supreme Court.

The Tribunal cancelled the imposition of penalty after recording a finding that the allegation of concealment of income was not proved. The Tribunal rightly recorded in para 8 of its judgment that merely because certain additions were made in the trading account by the Assessing Officer, it did not necessarily follow that the assessee- had concealed its income. The above recorded finding of the Tribunal recorded in para 8 of the judgment is unassailable.

Accordingly, we answer the question referred to us in the affirmative and in favour of the assessee.

Having regard to the facts and circumstances of the case, there would be no order as to costs.

M.B.A./1545/TReference answered.