SHREE ASHRAY LAL VS COMMISSIONER OF INCOME-TAX, 1998 PTD-ALLAHABAD-HIGH-COURT-INDIA 3248 (1996)

Income-tax--

----Penalty---Concealmentof income---Original returns filed disclosing certain income --- Returns filed pursuant to reassessment notices showing "nil" income---Original returns do not become non-existent---Income disclosed in original return cannot be treated as concealed---Indian Income Tax .Act,1961, S.271(1)(c).

For the assessment years 1966-67, 1968-69, 1969-70 and 1973-74, the assessee returned incomes of Rs.5,000, Rs.5,000, Rs.5,500 and Rs.4,620, respectively. Assessments for the assessment years 1966-67, 1968-69 and 1969-70 were completed on the basis of the incomes returned by the assessee. The Income-tax Officer noticed during the assessment proceedings relating to the assessment years 1972-73 and 1973-74 that a house was being constructed by the assessee in the name of his wife during the previous years relating to the aforesaid four assessment years. He, therefore, initiated proceedings under section 147(x) read with section 148 of the Income Tax Act, 1961, for the assessment years 1966-67, 1968-69 and 1969-70. Pursuant to the notices issued under section 148, the assessee filed returns for the three years showing nil income. The reassessment for these years were made on sums of Rs.10,500, Rs.10,190 and Rs.7,890, respectively, which sums included the incomes disclosed in the original returns. For the assessment year 1973-74, unexplained income was taken at Rs.19,600. Penalty was imposed under section 271(1)(c) of the Act on the concealed income. On appeal, the Appellate Assistant Commissioner held that since in response to the notices issued under section 148, the assessee had filed nil income returns, penalty had to be imposed treating the entire sums assessed as concealed income, and directed enhancement of penalty on the basis of the "nil" returns filed in response to the reassessment notices. The Income-tax Appellate Tribunal confirmed this. On a reference:

Held, that it could not be said that the assessee concealed particulars of the income already shown in the original returns, merely because such income was not shown subsequently in the returns filed pursuant to notice under section 148. Reassessment proceedings had been initiated to assess the escaped income and the incomes shown in the original returns for the first three years could not be rendered non-existent. There was no justification to hold that after the reassessment proceedings were initiated the position would be as if no income was disclosed earlier. Moreover, the income assessed during the reassessment proceedings for the first three years included the incomes shown in the original returns filed by the assessee. Therefore, the original returns could not be ignored for the purpose of determining- the, con cealment. For the assessment year 1973-74, penalty had rightly been imposed on the difference between the income disclosed and the income assessed.

All the facts and circumstances commencing with the filing of the original returns and ending with the assessments should be taken into consideration for determining the assessee's liability for penalty under section 271(1)(iii). When there is a variation between an original return and a return filed pursuant to a notice under section 148, the question would be which return is correct. Simply because the assessee filed the return in response to notice under section 148, the original returns filed by the 9ssessee would not be extinguished nor the contents thereof effected altogether.

CIT v. Onkar Saran & Sons (1992) 195 ITR 1 (SC) rel.

Govindarajulu Iyer (CV) v. CIT (1948) 16 ITR 391 (Mad.); Jaganmohan Rao (V.) v. CIT/CEPT (1970) 75 ITR 373 (SC) and Malbary (N.A.) & Bros. v. CIT (1964) 51 ITR 295 (SC) ref.

Shambhu Chopra for the Assessee.

JUDGMENT

At the instance of the assessee, the Income Tax Appellate Tribunal referred to this Court the following question under section 256(1) of the Income Tax Act, 1961 (for short, "the Act, 1961"), for its opinion:

"Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified to law to confirming the enhancement of penalties made by the Appellate Assistant Commissioner under section 271(1)(c) of the Income Tax Act, 1961?"

The reference relates to the assessment years 1966-67, 1968-69, 1969-70 and 1973-74. For these years, the assessee returned incomes in the original returns as follows:--

Rs;

Assessments for the assessment years 1966-67, 1968-69 and 1969 70 were completed on the basis of the incomes returned by the assessee. The Income Tax Office noticed during the assessment proceedings relating to the assessment years 1972-73 and 1973-74 that a house was being constructed by the assessee, in the name of his wife during the previous years relating to the aforesaid four assessment years. He, therefore, initiated proceedings under section 147(a) read with section 148 of the Act, 1961, for the assessment years 1966-67, 1968-69 and 1969-70. Pursuant to the notices issued under section 148, the assessee filed returns for the said three years showing income "nil". The reassessments for these years were made on March 9, 1976, as under:

Rs.

The comparative position of the income originally assessed, income reassessed and the concealed income for these years is as follows:

For the assessment year 1973-74, unexplained income was taken at Rs. 19,600 by the Income Tax Officer. Penalty proceedings were initiated by the Income Tax Officer for the above concealed amounts for the first three years and in respect of the unexplained investment of Rs. 19,600 for the assessment year 1973-94.

The Income-tax Officer levied the penalties as under:--

The assessee then appealed to the Appellate Assistant Commissioner, who held as follows:

"It is also seen that the returns in response to notices under section 148 for the first three years in dispute were filed showing nil income. How can the income be nil in response to notices under section 148 when the appellant had himself shown positive income in the original returns. This is nothing but concealment of particulars of income In computation of the penalty, the Income Tax Officer has taken original returns as the basis and he has missed the fact that the return filed in response to notices under section 148 shows nil income for the assessment years 1966-67, 1968-69 and 1969-70, therefore, penalty is to be computed on that basis because in that return even the particulars of originally assessed income were concealed."

The Appellate Assistant Commissioner then issued a notice for enhancement on March 19, 1979. The Appellate Assistant Commissioner giving effect to the order of the Income Tax Appellate Tribunal took the assessed income for the assessment year 1966-67 at Rs. 7,000 instead of Rs.10,500. For the assessment year 1973-74 for which there was no notice under section 148, the Appellate Assistant Commissioner computed minimum penalty at Rs. 20,615, i.e., on the difference of the incomes shown and the income assessed. This is how the Appellate Assistant Commissioner imposed penalties for the years under consideration as follows:

Rs.

In further appeal filed by the assessee, the Income Tax Appellate Tribunal held that the Appellate Assistant Commissioner was justified in enhancing the penalties on the basis of the returns filed in response to notices issued under section 148.

The short submission of learned counsel for the assessee before us is' that the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal both legally erred in holding that penalty was leviable with reference to the incomes as shown in the returns filed in response to the notices under section 148. His submission is that simply because "nil" income was shown in the returns filed in response to the notices under section 148 for the first three years, incomes originally returned for those years will not stand obliterated. It is submitted by him that when the assessee already returned income of Rs. 5,000 each for the assessment years 1966-67 and 1968-69 and of Rs. 5,500 for the assessment year 1969-70, it cannot be said that there was concealment to the extent of the incomes shown in the original returns even if in the returns filed pursuant to notices under section 148 "nil" income was shown for the first three years by the assessee. In short, his argument is that income once disclosed cannot be said to have been concealed on the ground that the same was not shown either in the revised return or in the returns filed in response to notices under section 148. The Income Tax Appellate Tribunal though affirmed the enhanced penalties imposed by the Appellate Assistant Commissioner it gave no reason as to why for determining the concealed income, returns originally filed for the first three assessment years are to be ignored and why the concealed income is to be determined, vis- -vis, the incomes shown in the returns filed in response to notices under section 148.

The only question for consideration before us is whether the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal committed an illegality in having ignored the incomes disclosed by the assessee in the original returns for the first three years for the purposes of determining the concealed income. Under clause (iii) of section 271(1), the minimum penalty is equal to the income in respect of which particulars have been concealed. It will be seen that the validity of the penalty depends on its being relatable to the income in respect of which particulars have been concealed. So, the question is as to what is that income in respect of which particulars have been concealed by the assessee. When the assessee disclosed in the original returns income of Rs. 5,000 each for the assessment years 1966-67 and 1968-69 and of Rs. 5,500 for the assessment year 1969-70, can it be said that there was concealment to that extent, as such incomes were not disclosed by the assessee in the returns filed pursuant to the notices issued under section 148? We are of the view that all the facts and circumstances commencing with the filing of the original returns and ending with the assessment should be taken into consideration for determining the assessee's liability for penalty under section 271(1)(iii). When there is variation in an original return and a return filed pursuant to a notice under section 148, then the question will be as to which return is correct.' Simply because the assessee filed the return in response to notice under section 148, the original returns filed by the assessee for the first three assessment years will not be extinguished and the contents thereof will not be effaced altogether. Can it be said that the assessee concealed particulars of the incomes having been shown in the original returns for the first three years ? Such income having already been disclosed in the original returns, it will not be proper to say that there was concealment to that extent simply because such incomes were not shown subsequently in the return filed in pursuance of the notice issued under section 148. What is disclosed cannot be said to have been concealed. The only thing is that the returns filed in response to the notices issued under section 148 by the assessee were incorrect inasmuch as he showed "nil" income in them as against the incomes originally disclosed. The words "in respect of which the particulars have been concealed or inaccurate particulars have been furnished" in section 271(1)(iii), qualify the preceding expression "the amount of the income". By using these words Parliament had made it clear that the quantification of the penalty was to be made with reference to that amount of the income of the assessee in respect of which there was concealment of particulars or furnishing of inaccurate particulars.

The assessee having once disclosed a certain income cannot turn round subsequently, unless an absolutely correct revised return is filed, and say that the income was not earned by him. The assessee is bound by the original disclosure and it is open for the Income Tax Officer to impose a penalty on the assessee for concealment on the basis of the incomes originally returned. If the original return could form a basis for determining the quantum of penalty imposable on the reassessment there is no reason why the original return should also not form the basis for determining the extent of concealment.

Anyway the problem we are beset with is not absolutely without a guideline. In CIT v. Onkar Saran and Sons (1992) 195 ITR 1 (SC) returns were filed pursuant to notice issued under section 148 on February 27, 1969, for the assessment years 1961-62 and 1962-63 disclosing the same income which was shown in the original returns. The Finance Act, 1968, amended section 271(1)(c) with effect from April, 1, 1968. It, inter alia, changed the measure of the penalty. The penalty after amendment was dependent upon the amount of income concealed and not on the amount of tax sought to be evaded. The question arose whether the penalty was leviable under the amended law. Counsel for the Revenue argued that the original returns filed in this case had culminated in the original assessments and are irrelevant for the present purposes. The present penalty proceedings were initiated in the course of reassessment proceedings initiated under section 148 of the Act. The returns filed by the assessee were in response to the notices under section 148, which are to be treated, in all respects, as the original returns of income filed under section 139(2). As the returns were filed pursuant to the notices under section 148 after April, 1, 1968, when section 271(l)(c) came to be amended, counsel for the Revenue argued that the penalty be imposed under the amended law and not vis- -vis the law which was operative on the date of the commission of the offence of concealment. The Supreme Court rejected the contention of counsel and held that the penalty would be computed on the basis of the law, which obtained on the date when the offence was committed, i.e., when the original return was filed which in that case was filed prior to the amendment.

It is to be made clear that in the instant case we are not concerned with the question as to at what rate penalty is to be computed but before us the question for consideration is whether the concealed income will be determined with reference to the returns filed in response to the notices under section 148 or vis- -vis the original returns. The decision in Onkar Saran's case (1992) 195 ITR 1 (SC) is relevant on this point also inasmuch as the Supreme Court ruled that original returns are not rendered useless or inconsequential after reassessment proceedings having been completed. In support of such proposition, the Supreme Court relied on the cases of multiple returns.

The Supreme Court held that the decision of the Madras High Court in Govindarajulu Iyer (C.V.) v. CIT (1948) 16 ITR 391, which was approved by the Supreme Court in Malbary (N.A.) & Bros.' case (1964) 51 ITR 295 also establishes the proposition that, even in the course of reassessment proceedings, a penalty could be imposed with reference to the concealment in the original assessment proceedings.

Then the Supreme Court observed that recent decisions in V. Jaganmohan Rao's case (1970) 75 ITR 373 (SC), and other cases indicate a view that, once an original assessment is reopened, the whole assessment proceedings for the year are thrown open for a fresh assessment. For all practical purposes, it is as if the original ass9ssment order does not exist. Whether this principle can be taken as applicable for all purposes or not, the real position is that, though, technically speaking, the original assessment proceedings have been finalized and reassessment proceedings have been initiated to assess the escaped income, it is only the determination of the correct total income for the assessment year in question that is being redone. If the principle so enunciated by the Supreme Court is borne in mind then it will follow that in the instant case reassessment proceedings had been initiated to assess the escaped income and if that is so, the incomes shown in the original returns for the first three years, could not be rendered non-existent and there is no justification to hold that after the reassessment proceedings have been initiated the position would be as if no income was disclosed earlier.

The Supreme Court on the basis of the aforesaid decisions concluding said (at page 8): "For this assessment year, the assessee filed a return of income originally and in doing so, effected a concealment. Finally, he is being reassessed for the year and, as pointed out by Malbary (N.A.) & Bros.'s case (1964) 51 ITR 295 (SC), it is open to the Income Tax Officer to impose a penalty on him for concealment on the basis of income originally returned".

From the foregoing discussion it is amply clear that the original returns filed by the assessee for the first three years had not become useless and meaningless after the reassessment had been initiated but concealment could be determined with reference to the incomes shown in the original returns.

Otherwise also, the view taken by the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal that concealment will be determined with reference to the nil incomes as shown in the returns filed in response to the notices under section 148 is fallacious. It is apparent that the incomes assessed during the reassessment proceedings for the first three years include the incomes shown in the original returns filed by the assessee. If that is so, the original returns cannot be ignored for the purpose of determining the concealment.

We are, therefore, of the view that the Income Tax Appellate Tribunal erred in affirming the decision of the Appellate Assistant Commissioner on the basis of the incomes shown in the returns, filed in response to the notices under section 148. There was no concealment to the extent of the incomes already disclosed in the original returns.

So far as the assessment year 1973-74 is concerned, penalty was rightly imposed by the Appellate Assistant Commissioner on the difference of the income disclosed and the income assessed.

The common question referred to this Court is, therefore, answered in the negative, that is, in favour of the assessee and against the Revenue, in so far as it relates to the assessment years 1966-67, 1968-69 and 1969-70 and the same is answered in favour of the Revenue and against the assessee for the assessment year 1973-74.

M.B.A./1639/FC Order accordingly.