COMMISSIONER OF INCOME TAX Vs. HAJI P MOHAMMED

JUDGEMENT

(1.) PURSUANT to the order passed by this court in O.P. No. 2674 of 1976, filed by the Commissioner of Income-tax, Kerala, the Income-tax Appellate Tribunal, Cochin Bench (hereinafter called " the Tribunal "), has referred the following questions of law to this court under Section 256(2) of the I.T. Act, 1961, for short, " the Act ", as arising out of the Tribunal's order dated June 26, 1975, in I.T.A. No. 215 (Coch)/74-75 :

(2.) THE assessee, an individual, is a contractor who has been executing works for the Public Works Dept. of the State Govt. For the assessment year 1971-72, the assessee filed a return declaring a total income of Rs. 21,240 under the head " Business". He had purported to arrive at the said figure of income by applying a flat rate of 10 per cent. to the aggregate amount said to have been received by him from the Public Works Dept., namely, Rs. 2,12,388. This had been made clear in the return filed by the assessee. When the assessment was taken up for finalisation, the ITO questioned the assessee, with reference to information that he had in his possession, relating to amounts received by the assessee from the Executive Engineer, Irrigation Division, Calicut, which had not been included in the aggregate receipts disclosed by the assessee in his return. On the said omission being pointed out by the ITO at the time of hearing on December 10, 1971, the assessee obtained an adjournment of the assessment proceedings and thereafter he filed a revised return on December 27, 1971, disclosing an income of Rs. 33,020 which was worked out by adding the sum of Rs. 2,12,388, received by the assessee from the Executive Engineer, Irrigation Division, Calicut, in respect of contract works executed by him, to the amount of aggregate receipt disclosed in the original return and applying 10 per cent. as the profit rate. THE ITO completed the assessment on the basis of the aggregate amount received by the assessee in respect of all the contract works executed by him and applying the net profit rate of 121/2 per cent. That resulted in the fixation of the total assessable income at Rs. 41,270. THE said assessment has become final.

(3.) THE assessee took up the matter in appeal before the AAC. Strangely, the AAC merely set out the arguments advanced before him by the representative appearing on behalf of the assessee on the question as to whether the assessee could be said to be guilty of concealment under Section 271(1)(c) without proceeding to discuss the merits of those arguments and record any finding of his own on the said crucial question. Instead, what the AAC did was to consider only the question of liability of the assessee for a penalty under the Explanation to Section 271(1) of the Act. On the basis of such an approach, the AAC held that since the assessee was maintaining no books of account during the relevant accounting period as well as in the previous years and he had not been subjected to the levy of penalty in any of the previous years, it would be reasonable to regard the failure on the part of the assessee to return the correct income as not arising from any fraud or gross or wilful neglect on his part. In the opinion of the AAC, since the receipt of the amount which the assessee had not disclosed in his original return was from a Govt. dept. it was unlikely that the assessee would have chosen to conceal the particulars of the said receipt. On the aforesaid reasoning, the AAC reversed the order of the ITO holding that the latter was not justified in levying the penalty. THE department took up the matter in appeal before the Tribunal contending that the interference made by the AAC with the order of the ITO was uncalled for and illegal. THE Tribunal disposed of the main point relating to the culpability of the assessee under Clause (a) of Sub-section (1) of Section 271 very summarily by stating that since the assessee had not been maintaining books of account for the past several years and the assessments against him had been made on estimate basis and the amounts received from the Executive Engineer, Irrigation Division, Calicut, during the earlier years had been included by the assessee in the returns filed by him for those years and since for the assessment year in question the assessee himself had filed a revised return within a short period of the omission being brought to his notice " a case cannot be made out for a penalty under the main provisions of Section 271(1)(c) ".