COMMISSIONER OF INCOME TAX Vs. INDIA SEA FOODS

JUDGEMENT

(1.) IN this reference under Section 256(1) of the INcome-tax Act, 1961 (hereinafter called the Act), the INcome-tax Appellate Tribunal, Cochin Bench (hereinafter referred to as the Tribunal), has referred to this court the following question:

(2.) THE assessee is a registered firm engaged in the business of export of marine products like prawns, fish, etc. For the assessment year 1968-69, the accounting period in respect of which was the year ending December 31, 1967, the assessee-firm had filed a return in which it had declared a net loss of Rs. 3,29,304. Certain investments made by the partners of the assessee firm, who were also partners of two other firms, were the subject-matter of investigation by the income-tax department. THE partners then approached the department by two petitions dated June 29, 1968, and February 12, 1969, for a settlement of their income-tax affairs and after discussions between the department and the assessee a settlement was arrived at, the terms of which were incorporated in an agreement dated September 27, 1969. Under that settlement the partners of the firm agreed that over and above the income returned by the three firms for the years 1964-65 to 1968-69, a sum of Rs. 7,00,000 may be added as income derived by them from undisclosed sources and that the said amount may be spread over between the assessment years 1964-65 to 1968-69 in proportion to the turnover disclosed by the assessee in respect of each of those years. THE assessee had also agreed under that settlement that the minimum penalty prescribed under the Act may be levied against it for all those years. Pursuant to the said settlement the Income-tax Officer while finalising the assessment of the firm for the year 1968-69 added an amount of Rs. 2,84,727 as concealed income derived by the assessee during the relevant accounting period. Certain items of expenses in respect of which the assessee had claimed deductions in the return filed by it were disallowed by the Income-tax Officer as inadmissible. THE net result of these additions was that in the place of the loss of Rs. 3,29,304 shown in the return the assessee was found to have made a profit of Rs. 18,460 and the assessment was finalised accordingly. Annexure 'A' appended to the statement of the case is a copy of the said assessment order.

(3.) COUNSEL for the revenue contended before us that the Tribunal having specifically held that the assessee had concealed its income and that hence penalty was impasable against the assessee under Section 271(1)(c), it has acted with manifest inconsistency in proceeding to cancel the penalty levied against the assessee by the Inspecting Assistant Commissioner on the ground that the word "income" occurring in Section 271(1)(c) of the Act should "normally refer to a positive figure only and not a loss as in the assessee's case" and that since the assessee had been more than covered by the additions made by the Income-tax Officer consequent on the disallowance of certain items of deductions claimed by the assessee it could not be said that there was a concealment by the assessee even to the extent of the income assessed. COUNSEL for the revenue submits that the view taken by the Tribunal regarding the scope of Section 271(1)(c) is not warranted by the language of the section and that if the said interpretation is to be accepted as correct it would completely defeat the object and purpose of the said section.