COMMISSIONER OF INCOME-TAX VS POPULAR LUNGHI CO., 2000 PTD-MADRAS-HIGH-COURT-INDIA 3677 (1998)

Income-tax---

----Penalty---Concealment of income---Survey at assessee's premises conducted after completion of assessments---Assessments reopened and income brought to tax---Admission by assessee that income not disclosed in original return---Levy of penalty for concealment justified---Cancellation of penalty for subsequent years on ground disclosure was before completion of assessments---Decision not applicable for years in question---Indian Income Tax Act, 1961, S.271(1)(c).

The assessee was a firm carrying on business of manufacture and sale of Khailees. Subsequent to the completion of assessinents for the assessment year s 1967-68, 1968-69 and 1969-70, there was a survey operation of the business premises of the assessee under section 133A of the Income Tax Act, 1961. The reports and documents found during the course of survey according to the Department, revealed that the assessee was carrying on a money-lending business outside its books of account and the income from the said source was not disclosed in the original returns filed by the assessee for the said three assessment years. The assessee contended that the materials found during the survey did not reveal any such income from money-lending business: However, the assessee approached the Commissioner with a settlement petition, stating that it was carrying on money-lending business for the past three years and had not maintained any books of account for the money-lending business and that the transactions were not accounted for in the regular books of account in respect of the money-lending business carried on by it. The assessee thereafter requested the Commissioner to direct the Income-tax Officer to settle the assessment suitably not only for the three assessment years under consideration but also for subsequent assessment years, namely, 1970-71, 1971-72, 1972-73 and 1973-74. Since the assessments for the first three years were already completed, the Income-tax Officer re-opened the assessments for the assessment years 1967-68, 1968-69 and 1969-70 under section 147(a) of the Act. The assessee filed returns of income for the said assessment years on July 17, 1976, disclosing, inter alia, the income from money-lending business, which had not been disclosed in the original returns filed by it. The Income-tax Officer also levied penalty. The Tribunal cancelled the penalty, on the ground that there was no difference between the factual situation found for the present three assessment years and the other four assessment years for which the Tribunal had already cancelled the penalty. On a reference:

Held, (i) that, admittedly, when the assessee filed the original returns of income on January 24, 1972, the assessee had not disclosed the income from money-lending business. For the assessment years 1970-71 to 1973-74 the assessee even before the completion of the original assessments for those assessment years came forward with the voluntary petition disclosing the income, and, therefore,- it was held that the assessee had disclosed the income from money-lending business voluntarily during the course of assessment proceedings for the assessment years 1970-71 to 1973-74. However for the assessment years 1967-68 to 1969 70 the assessee had not disclosed the income from money-lending business in the original returns, and it was only after the voluntary disclosure petition and in pursuance of the notice under section 147(a) of the Act, that the assessee filed its returns and in the returns so filed it had disclosed the income from money-lending business. Therefore, the decision rendered for the subsequent assessment years would not apply.

(ii) That the assessee had readily agreed to the inclusion of the amount as its income and when the assessee itself had admitted that it had not disclosed the income in the original returns and not accounted for the same in the regular books of account maintained by it, no further evidence would be. necessary to show that the amount disclosed in the reassessment proceedings was its income and it represented its concealed income. The Tribunal had also overlooked that the Income-tax Officer had invoked the Explanation to section 271(1)(c) of the Act, and the assessee had not discharged the burden cast on the assessee by the Explanation under section 271(1)(c) of the Act. Therefore, the Tribunal was wrong in cancelling the penalty.

CIT v. Krishna & Co. (1979) 120 ITR 144 (Mad.); CIT (Addl.) v. Perumalswamy (T.K.) (1984) 150 ITR 600 (Mad.) and Western Automobiles (India) v. CIT (1978) 112 ITR 1048 (Bom.) applied.

CIT v. Anwar Ali (1970) 76 ITR 696 (SC); CIT v. Rathnaswamy, (C.J.) (1997) 223.ITR 5 (Mad.); Durga Timber Works v. CIT (1971) 79 ITR 63 (Delhi) and Jaswant Rai v. CBDT (1982) 133 ITR 19 (Delhi) ref.

C.V. Rajan for the Commissioner:

Nemo for the Assessee.

JUDGMENT

N.V. BALSUBRAMANIAN, J.---The assessee is a firm carrying on business in the manufacture and sale of khailees. The years of assessment with which we are concerned are 1967-68, 1968-69 and .1969-70. The reference relates to levy of penalty under section 271(1)(c) of the Income Tax Act, 1961, hereinafter referred to as the Act. The factual situation for all the assessment years are common, and hence we thought fit to notice the facts for the assessment year 1967-68 and it is not necessary to burden the judgment with the factual situation for the other two assessment years. The assessee filed return of income for the assessment years 1967-68, 1968-69 and 1969-70 on May 30, 1968, March 28, 1969 and February 9, 1970, disclosing income of Rs.95,924, Rs.1,37,645 and Rs.2,39,832, respectively. The assessment for all the years were completed on March 23, 1971, January, 10, 1972 and on January 10, 1972, respectively. On September 19, 1972 subsequent to the completion of assessment for all the assessment years there was a survey operation of the business premises of the assessee under section 133A of the Act. The report and documents found during the course of survey according to the Department, revealed that the assessee was carrying on a money-lending business outside its books of account and the income from the said source was not disclosed in the original returns filed by the assessee for the said three assessment years. The assessee contended otherwise stating that the materials found during the survey did not reveal any such income from money-lending business. However, the assessee approached the Commissioner of Income-tax on September 19, 1972, with a settlement petition, stating that he was carrying on money-lending business and lending money for the past three years and had not maintained any books of account for the money-lending business and the transactions were not accounted in the regular books of account in respect of the money-lending business carried on by him. The assessee-thereafter requested the Commissioner of Income-tax to direct the Income-tax Officer to settle the assessment suitably not only- for the three assessment years under consideration but also for the subsequent assessment years, namely, 1970-71, 1971-72, 1972-73 and 1973-74. He also prayed that the penalty may not be levied and even if it is levied it may be waived. The assessee in the settlement petition voluntarily offered for assessment a total sum of Rs.4 lakes which may be spread over and assessed during the seven assessment years commencing from 1967-68 to 1973-74. Since the assessments for the assessment years 1967-68, 1968-69 and 1969-70 were already completed by the time the survey took place and by the time when the assessee approached the Commissioner of Income-tax with settlement of his assessment of income, the Income-tax Officer reopened the assessments for the three assessment years 1967-68, 1968-69 and 1969-70 under section 147(a) of the Act. The assessee filed returns of income for the said assessment years on July 17, 1976, disclosing, inter alia, the income from money-lending business was Rs.4,500 for 1967-68; Rs.19,600 for 1968-69, Rs.34,000 for 1969-70, which had not been disclosed in the original returns filed by it. The Income-tax Officer completed reassessments on March 31, 1978, bringing to tax the income from the money-lending business, which were neither disclosed by the assessee in the original returns nor assessed by him in the original assessments made by him. The Income-tax Officer also initiated proceedings for levy of penalty under section 271(1)(c) of. the Act and issued a show-cause notice to the assessee why the penalty should not be levied for concealment of income, and the assessee filed a written representation, dated March 23, 1980, wherein the assessee has stated that the facts and circumstances were the same for. the assessment years 1970-71 to 1973-74, and 'the Appellate Tribunal had ordered to cancel the penalty levied for those assessment years on the ground that the assessee had voluntarily disclosed the income in the original returns filed and therefore there is no case for the levy of penalty under section 271(1)(c) of the Act. The Income-tax Officer, however, did not accept the explanation offered by the assessee, and he held that it is not correct to state that the assessee voluntarily brought to the notice, of the Department the income from money-lending business. According to the Income-tax Officer only on the basis of the survey operation conducted by the Department, the income from money-lending business carried on by the assessee came to light and the documents found at the time of survey showed that the assessee was carrying on money-lending business outside the books of account disclosed to the Department. He, therefore, held that but for the survey operation, the assessee would not have come forward with the disclosure petition, and only as a result of the information in the possession of the Department consequent on the survey operation the assessee came forward with the voluntary disclosure petition disclosing that the assessee had been doing money-lending business outside his books of account. The Income-tax Officer, therefore, came to the conclusion that the assessee had PMconcealed the income from money-lending business carried on by it in the original returns filed by it, and whatever may be the subsequent conduct of the assessee the return originally filed showed 'that the assessee filed the returns with the knowledge that they were false returns and levy of penalty was called for. The Assessing Officer also invoked the provisions of Explanation to section 271(1)(c) of the Act and held that the assessee had not discharged the onus cast upon the assessee and held that since the income from money-lending business was not disclosed in the original returns, the case called for the levy of penalty and he levied the maximum penalty for all the assessment years.

The assessee appealed to the Commissioner of Income-tax (Appeals) against the orders of penalty for all the assessment years. On behalf of the assessee the correctness of the observation made by the Income-tax Officer that the full facts came to the Department only on the basis of the search was disputed. The Commissioner of Income-tax (Appeals), therefore, called upon the authorised representative of the Department to prove the statement made by the Income-tax Officer that only on the basis of the materials found in the survey operation the income from money-lending business came to light. The Commissioner of Income-tax (Appeals) noticed that the Departmental representative conceded the position that the information regarding the money-lending business came from the assessee without being detected first by the Department, and he recorded a categorical finding that the officer was not correct in his statement that the assessee disclosed

the money-lending business consequent on the detection of the concealment of income by the survey operation. The finding of the Commissioner (Appeals) has become final. The Commissioner of Income-tax (Appeals) went into the merits of the case and he found that the penalty levied on the assessee cannot be justified in view of the fact that the assessee voluntarily offered for settlement of income for the assessment years 1967-68, 1968-69 and 1969-70. The Commissioner of Income-tax (Appeals) came to the conclusion that the settlement petition covered all the assessment years, namely, 1967-68 to 1973-74, and there is nothing on record to persuade him to hold that the fact for the assessment years 1967-68 to 1969-70 were in any way qualitatively different from those present for the assessment years 1970-71 to 1973-74 wherein the Tribunal after considering the entire materials cancelled the penalties. He, therefore, held that the levy of penalty was not justified and cancelled the penalty for all the three assessment years, and allowed the appeals preferred by the assessee.

The Revenue carried the matter in appeal before the-Income-tax Appellate Tribunal. The Tribunal was of the view that there was no difference between the factual situation found for the present three assessment years and the other four assessment years for which the Tribunal had already cancelled the penalty. An argument has been advanced on behalf of the department before the Tribunal that there is a difference on the facts and as in the there assessment years under consideration, the original were filed and assessments were also completed and the Pled after the completion of the original assessment. The Tribunal, however, did not accept the contention urged on behalf of the Department as accordingit for the assessment year 1970-71 for which the penalty also cancelled by its earlier order, the original return was filed on January 24, 1972, without disclosing the money-lending business and subsequent to the survey operationcarried on by income tax "come-tai: Officer, the assessee filed the revised return voluntarily disclosing the i!-41Cvrrie from the money-lending business. The Tribunal, therefore, came to the conclusion that the mere fact that the Income-tax Officer had completed the original assessments and the assessee had filed the revised returns only after the original assessment would not better the position of the Department, and following its earlier order it cancelled the penalty and upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the appeal preferred by the Department.

On a applica6etts tiled by the Department, the Appellate Tribunal stated a case and referred the following common question of law for all the three assessment years consideration under section 256(1) of the Act for our consideration:

Whether the Tribunal was right in cancelling the penalties levied under section 271(1)(c) in the assessee's casethe assessment years 1967-68 to 1969-70?"

Before going to the merits of the case it is necessary to note that the earlier order of the Appellate Tribunal for the assessment years 1970-71 to 1973-74 was tire subject-matter of reference before this Court in T.C. Nos. 1321 1324 of 1982 and this Court by Judgment, dated January 25, 1995. upheld the view of the Appellate Tribunal on the ground that there was no evidence on the side, of the Department to show that the assessee was grossly and wilfully negligent in declaring the correct income and the Tribunal was correct in deleting the penalty under section 271(1)(c) of the Act. This court also noticed the fact that for the said assessment years the Income-tax Officer did not detect any concealment while completing the assessment and the report did not. reveal that the inspection party had found any concealed income from money-lending business. It is in the light el the above facts the question whether the order of the Tribunal cancelling the penalty for the present three assessment years is sustainable or not as to be considered. Mr. C.V. Rajan, learned counsel for the Revenue, submitted that the Tribunal was not correct in holding that the factual circumstances prevalent for the assessment years 1967-68 to 1969-70 are the same for the subsequent years 1970-71 to 1973-74 and according to him the Tribunal overlooked an important fact that the assessee had in the original returns of income concealed the particulars of income from money-tax on September19,1972 the assessee had admitted that the money leadingbusiness and in the voluntary disclosure filets before the Commissioner of Income-tax on September. 19, 1972, the assessee had admitted that the money-lending business was not accounted for in the regular books of account and the assessee was not maintaining accounts for the money-lending business. He also submitted that the Tribunal also did not give importance to the fact that the assessments for the three years were completed on the basis of the returns submitted by the assessee, and therefore, when there was a concealment in the original returns the Income-tax Officer was justified to hold that there was a concealment of income in the original returns filed by the assessee calling for the levy of penalty. Mr. C.Y. Rajan al, submitted that the factual circumstances for the subsequent four years are different as in those cases the assessments were completed at the time of the survey operation and the assessee had carne forward voluntarily to disclose the income from money-lending business and the difference in the factual circumstances was not noticed by the Appellate Tribunal. He also submitted that the Income-tax Officer had invoked the provisions of the Explanation under section 271(1)(c) of the Act and the assessee had not discharged the onus cast upon the assessee. He also submitted it is not a case of levy of penalty on the basis of rejection of the assessee's explanation but it is a case where the transactions regarding money-lending business were neither accounted for in the regular books of account carried on by the assessee nor shown in the original returns submitted by the assessee. He also submitted the earlier decision of this Court in T.C. Nos. 1321 and 1324 of 1982, dated January. 25, 1995 does not apply to the facts and circumstances of the case. The assessee was served on March 13. 1992, in all the tax cases. But there was no representation on behalf of the assessee.

We have carefully considered the submissions of learned counsel for the Revenue and carefully perused the records. As a matter of fact it has to be recorded that learned counsel for the Revenue in a fair manner brought to our notice the decision which are against the Department as it is a case of levy of penalty and the assessee has not chosen, to appear before this Court at the time of hearing of the tax cases.

The facts remain that in they original returns' filed & the assessee for all the assessment years in question the assessee had not disclosed the income from money-lending business and on the basis of the original returns filed by the assessee the assessments were completed by the Income-tax Officer. Subsequent to the completion of the assessments the survey was conducted by the Income-tax Officer on September 19, 1972 under section 133A of the Act, and thereafter the assessee came forward with an application for settlement by filing an application, dated September 29, 1972, before the Commissioner of Income-tax wherein it had been categorically admitted that the assessee had been carrying on lending money and it has not maintained accounts for that business and that receipts from the money-lending business were not accounted for in the regular accounts for the lunge business. It was admitted that a sum of Rs.4 lakhs was the income from money-lending business and that the said sum of Rs.4 lakhs should be spread over for the assessment years 1967-68 to 1973-74. On the basis of the settlement petition filed, the Income-tax Officer reopened the assessments for the assessment years 1967-68 to 1969-70 under section 147(a) of the Act ,and on the basis of notices issued under section 147(a) of the Act the assessee came forward with the returns disclosing the income from money-lending business. There is no dispute that when the assessee had filed the original returns of income on January 24, 1972, the assessee had not disclosed the income from money lending business. However, in so far as the assessment years 1970-71 to 1973-74 in question the assessee even before the completion of the original assessments for those assessment years came forward with the voluntary petition disclosing the income, and, therefore, it was held that the assessee had disclosed the income from money-lending business voluntarily during the course of assessment proceedings for the assessment years, 1970-71 to 1973-74. However, for the assessment years 1967-68 to 1969-70, the assessee had not disclosed the income from money-lending business in the original returns, and it is only after the voluntary disclosure petition and in pursuance of the notice under section 147(a) of the Act, the assessee filed its returns and in the returns so filed it had disclosed the income from money-lending business. Therefore, in view of the vital difference in facts between the two sets of assessment years, in question, the decision rendered by the Appellate Tribunal or by this Court for, the subsequent assessment years cannot be applied to the factual situation prevalent for the assessment years 1967-68 to 1969-70 for cancelling the penalty. The facts clearly show that the assessee had voluntarily admitted that there was income outside the books .of account which were not accounted for in the original returns of income filed for the three assessment years. In a more or less similar situation this Court considered the question of levy of penalty in the case of Addl. CIT v. T.K. Perumalswamy (1984) 150 ITR 600 (Mad.) In that case the Court was dealing with a case of levy of penalty for two assessment years 1963-64 and 1964-65. In so far as the assessment year 1963-64 was concerned, the assessee claimed that the art silk yarn imported by it from abroad under import permits were used in the manufacture of textiles in its own looms and the textiles so manufactured were sold on that basis. After the completion of the assessment, the assessee filed a petition under section 271(4A) of the Act voluntarily disclosing certain income over and above that which had been assessed for the assessment year. In the petition the assessee confessed that the nature of the transaction carried on by it during the assessment proceedings was not correct and it had sold the import licences and not imported yarn. The assessment was reopened on the basis of a notice issued under section 147(a) of the Act and the penalty was also levied for the assessment year 1963-64. The Tribunal held that the assessee has filed revised returns incorporating the figures filed in the voluntary disclosure petition and the Income-tax Officer had merely enhanced the figures disclosed by the assessee with the result that in the ultimate assessment what was determined was an estimated figures. The Tribunal cancelled the penalty for the assessment year 1963-64. For the assessment year 1964-65, the assessee disclosed in the revised return the profits on the sale of licences and on that basis estimated its profit. The estimate by the Income-tax Officer was a higher figure and the Income-tax Officer also levied penalty for the assessment year 1964-65. The Tribunal also cancelled the levy of penalty for the assessment year 1964-65. Both the matters came up for consideration before this Court and this Court held that with reference to the assessment year 1963-64, the Tribunal overlooked the fact that the penalty was directed against the assessee for its having suppressed and concealed the income in the original return filed in the assessment proceedings, wherein it was made to appear that the income was derived by it from the business of manufacturing finished textile goods out of imported art silk yarn instead of selling the same. This Court held that the assessee's conduct of estimating the figure and filing a revised return for the assessment year 1963-64 would show there was a deliberate concealment of income and it called for the levy of penalty and this Court held that the Tribunal was not correct in cancelling the penalty. In so far as the assessment year 1964-65 was concerned, this Court upheld the view of the Appellate Tribunal and held that the assessee had voluntarily disclosed the income as the assessment was not completed at the time of filing the voluntary disclosure petition and the Tribunal was correct in holding that there was not case for levying penalty. In our opinion the decision of this Court in Perumalswamy's case (1984) 150 ITR 600, rendered for the assessment year 1963-64 would apply to the facts of this case. We are of the view that the Tribunal in the instant case had overlooked the fact that the penalty was directed against the assessee for having suppressed the income and concealed the income in the original returns wherein the assessee had not disclosed the income from money lending business. The assessee's own showing and its admission that it was carrying on money-lending business and the income from which was not recorded in the original books for lungi business carried on by it called for the levy of penalty. The assessee's own showing after the filing of the original returns for the three assessment years would establish that there was a deliberate concealment of income and the case called for levy of penalty.

The decision of this Court in CIT v. Krishna & Co. (1979) 120 ITR 144, is also a case for levy of penalty and there the books of the assessee showed certain borrowings and repayments from certain bankers. The assessee therein produced the discharged hinds before the Income-tax Officer and the Income-tax Officer found that the bankers were not money lenders but name lenders and when it was pointed out to the assessee, it readily agreed to the addition of the peak credit as its income. The penalty proceedings were also initiated against it and the assessee contended that no penalty was exigible and the pleading of the assessee was rejected but accepted by the Tribunal. When the matter came before this Court, this Court held (headnote):

"In a case where the assessee himself has admitted that the amount represented his own income no further evidence would be necessary to show that it was the amount which represented his income and it represented his concealed income. The assessee in the instant case having readily agreed to the inclusion of the amount as his income, the levy of penalty was justified."

This Court in CIT v. Krishna & Co. (1979) 120 ITR 144, followed the decision of the Bombay High Court in Western Automobiles (India) v. CIT (1978) 112 ITR 1048, 1053, wherein the Bombay High Court noticed the decision in CIT v. Anwar Ali (1970) 76 ITR 696 (SC, and held as under (page 146):

"It was held that the decision of the Supreme Court in Anwar Ali's case (1970) 76 ITR 696, was not applicable to a case where the addition was not by a mere rejection of the explanation of the assessee but on account of an admission of the assessee that the amounts may be added as its income as was the case before the Delhi High Court in Durga Timber Works (1971) 79 ITR 63."

In our view the decision of the Bombay High Court as well as the decision of this Court in Krishna & Co.'s case (1979) 120 ITR 144, would apply to the facts and circumstances of the case and the assessee in the instant case had readily agreed to the inclusion of the amount as its income and when the assessee itself had admitted that it has not disclosed the income in the original returns and not accounted for the same in the regular books of account maintained by and no further evidence would be necessary to show that the amount disclosed in the reassessment proceedings was its income and it represented its concealed income. In Jaswant Rai v. CBDT (1982) 133 ITR 19, the Delhi High Court has held as under (headnote):

"Where the assessee has concealed his income, any subsequent Act of voluntary disclosure would not affect the imposition of penalty for concealment,"

The assessee in the instant case had concealed the income in the original returns and its subsequent Act of disclosure of income and the agreement to the addition of income would show that the assessee had concealed the particulars of income and had furnished inaccurate particulars of its income. In the instant case, we are of the opinion that the assessee had concealed and not disclosed the income from money-lending business. We are, therefore, of the view that the subsequent disclosure of the income in the voluntary disclosure petition would not improve the case of the assessee and it cannot be disputed that the assessee had not disclosed the income in the original returns filed on the basis of which the original assessments were completed. We are of the opinion that the Tribunal overlooked the important fact that the assessee had not disclosed the income in the original returns filed and the assessments were also completed and it -is also not a case of voluntary disclosure of income during the course of assessment proceedings. We are of the opinion that where the. assessee itself admitted that there was income from money-lending business which were not accounted for in the original returns filed and in the assessment proceedings before the completion of assessment, the facts of the case would call for the levy of penalty.

Mr. C.V. Rajan, learned counsel for the Revenue, brought to notice the decision in CIT v. C.J. Rathnaswamy (1997) 223 ITR 5, wherein this Court has held that where the assessed agreed for addition of the undisclosed income, but did net agreed for addition on the basis that the undisclosed income was his concealed income, in the absence of any material to show the assessee had concealed the income and furnished inaccurate particulars this would not warrant the levy of penalty. .

This decision does not apply as it is not a case of mete rejection of explanation. On .the other hand, the facts show that the assessee had not accounted for the income from money-lending business and the assessee admitted that there was income not accounted in the books of account. Therefore, it is a case of admission on the basis that the undisclosed income was the concealed income, and therefore, the decision brought to our notice by learned counsel for the Revenue has no application to the facts and circumstances. We, therefore, hold that the earlier decision of this Court in T.C. Nos. 1321 to 1324 of 1982, dated January 25, 1995, does not apply to the facts of this case.

We also hold that the Tribunal has also overlooked that the Income-tax Officer had invoked the Explanation to section 271(1)(c) of the. Act, and the assessee has not discharged the burden cast on the assessee by the Explanation under section 271(J)(c) of the. Act. We are of the opinion that the Tribunal cancelled the penalty without taking into account the material distinction prevalent between the facts appearing for the subsequent assessment years and the facts of the three assessment years in question. We are of the opinion that the levy of penalty is warranted on the facts and circumstances of the case, and we therefore hold that the Tribunal was not correct in cancelling the penalty levied under section 271(1)(c) of the Act, for the assessment years 1967-68 to 1969-70. Accordingly, we answer the common question for all the three assessment years in the negative and in favour of the Department. In the circumstances of the case there will be no order as to costs.

M.B.A./93/FCReference answered.