1973-VIL-443-KAR-DT

Equivalent Citation: [1974] 95 ITR 542

KARNATAKA HIGH COURT

Date: 07.08.1973

D. HALAPPA SONS

Vs

COMMISSIONER OF INCOME-TAX, BANGALORE.

BENCH

Judge(s)  : G. K. GOVINDA BHAT., M. K. SRINIVASA IYENGAR.

JUDGMENT

The judgment of the court was delivered by

GOVINDA BHAT C. J.-The Income-tax Appellate Tribunal, Bangalore Bench, has stated a case and referred under section 256(2) of the Income-tax Act, 1961, hereinafter called "the Act", the following question of law for the opinion of this court:

"Whether, on the facts and circumstances of the case, the levy of penalty of Rs. 2,800 is justified?"

Learned counsel on both sides submit that the correct question of law should read thus:

"Whether, on the facts and circumstances of the case, the levy of penalty of Rs. 1,984 is justified in law?"

The reference relates to the assessment year 1964-65. The relevant accounting year ended on 30th June, 1963. The assessee is a registered firm consisting of six partners carrying on business as provision merchants. It has a number of branches. The assessee returned an income of Rs. 30,965. The assessing authority did not accept that return. He added the following additions:

Rs.

(1) G.P. addition in head office ... 8,000

(2) G.P. addition in hardware ... 14, 000

(3) G.P. addition in Ganesh Trading ... 1,000

(4 Addition to jaggery account ... 3,000

Thus the total income of the assessee was determined at Rs. 59,273. Proceedings were initiated by the Income-tax Officer under section 271(1)(c) of the Act on the ground of concealment of income. As the minimum penalty leviable exceeded Rs. 1,000, the proceedings were referred by the Income-tax Officer to the Inspecting Assistant Commissioner of Income-tax, Dharwar Range. In response to the notice issued by the Inspecting Assistant Commissioner, the assessee submitted his written explanation dated July 14, 1965, in which he has offered various explanations in regard to the four items of additions made. He also submitted that the additions made were the subject-matter of an appeal before the Appellate Assistant Commissioner. It was finally submitted that the additions on the basis of estimation do not amount to concealment and that the Income-tax Officer has not established any concealment of income in the books of account apart from making G.P. additions of the turnover. Therefore, he requested that the penalty proceedings under section 271(1)(c) be dropped. On the written representation submitted by the assessee's authorised representative, the Inspecting Assistant Commissioner obtained an endorsement from the said representative which reads thus:

"I concede to the minimum penalty.

(Sd.) S. P. Ramaswamy,

Chartered Accountant."

The Inspecting Assistant Commissioner, Dharwar, passed an order imposing a penalty of Rs. 2,800. Against the said order, the assessee preferred an appeal before the Income-tax Appellate Tribunal, Madras Bench. Before the Appellate Tribunal, the same authorised representative, Sri Ramaswamy, represented the assessee. The Tribunal without considering the question whether or not there was concealment of income so as to attract penalty under section 271(1)(c) of the Act, substantially affirmed the order of the Inspecting Assistant Commissioner. This is what the Tribunal has stated in paragraph 3 of its order:

"Having conceded in writing before the Inspecting Assistant Commissioner that a levy of penalty was called for, and having invited the levy of the minimum penalty, it is not open to the assessee to urge before us that the levy of penalty was not justified. It is, however, pointed out that in the quantum appeal before the Appellate Assistant Commissioner against the assessment for this year, the Appellate Assistant Commissioner has made certain reductions in the additions made by the Income-tax Officer. The minimum penalty leviable on the basis of the additions as reduced by the Appellate Assistant Commissioner would come to Rs. 1,984. The penalty is, therefore, reduced from Rs. 2,800 to Rs. 1,984.

In the result, the appeal is allowed in part."

It was submitted before us that in the assessment order appealed against before the Appellate Assistant Commissioner, the addition of Rs. 3,000 made on jaggery account has altogether been deleted and the assessee has obtained relief to the fullest extent in that regard. It was also submitted that the addition of Rs. 14,000 on hardware account was reduced to Rs. 10,000 from Rs. 14,000. The additions of Rs. 8,000 and Rs. 1,000 referred to earlier have been upheld.

It is seen from a perusal of the order of the assessing authority that action under section 271(1)(c) of the Act was prompted by the fact that the assessing authority had made an addition of Rs. 3,000 under the head "jaggery" which was outside the books of account. It is also relevant to state that the assessing authority has stated that action under section 271(1)(c) is also initiated in view of the fact that the returned income is less than 80 per cent. of the assessed income. The Inspecting Assistant Commissioner who made the order of penalty has merely referred to the discussion in the order of the Income-tax Officer and he has not adduced any additional grounds for coming to the conclusion that penalty was called for. He had stated that "the Income-tax Officer has discussed in detail as to why he is forced to make the above-mendoned additions and he is also satisfied that the assessee not only concealed a part of its income from jaggery business but also comes under the mischief of the Explanation to section 271(1)(c) in its true sense". As already stated, the Tribunal has not applied its mind at all to the question in issue. A case of concealment of part of income of the assessee relating to jaggery business has no foundation since the appeal on merits has succeeded. Then the order has to rest entirely on the ground that the returned income is less than 80 per cent. of the income determined. But that was not a ground on which the Income-tax Appellate Tribunal has sustained the order. In the absence of any case of concealment of income relating to jaggery business, one cannot conjecture as to what view the Inspecting Assistant Commissioner or the Appellate Tribunal would have taken in the matter.

It has been laid down by the Supreme Court in Commissioner of Income-tax v. Khoday Eswarsa and Sons that "penalty proceedings being penal in character, the department must establish that the receipt of the amount in dispute constitutes income of the assessee; that apart, from the falsity of the explanation given by the assessee, the department must have before it, before levying penalty, cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt". In the instant case, none of the authorities have stated that the assessee had consciously concealed the particulars of its income. Sri S. R. Rajasekhara Murthy, learned counsel for the revenue, made a submission that we should remit the matter to the Tribunal to apply its mind afresh to find out as to whether penalty is arbitrary. We are not inclined to accede to that contention. As already stated, the Tribunal has entirely rested its decision on the alleged concession made by the assessee's authorised representative. No penalty can be imposed merely on the concession of an assessee or his representative unless the facts justify or warrant the levy of penalty.

In the result, for the reasons stated above, we answer the question referred in the negative and against the department. The assessee is entitled to its costs. Advocate's fee, Rs. 250.

Question answered in the negative.

 

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