COMMISSIONER OF INCOME TAX Vs. A SREENIVASA PAI

JUDGEMENT

(1.) PURSUANT to a direction given by this court, the following question has been referred for opinion under Section 256(2) of the Income-tax Act, 1961 (in short "the Act"), by the Income-tax Appellate Tribunal, Cochin Bench (in short "the Tribunal") :

(2.) THE factual position as set out in the statement of case is as follows : THE assessee is a partnership firm carrying on business in provision goods, rice, sugar, etc. For the assessment year 1987-88, the return of income on behalf of the firm was filed on June 29, 1987, declaring a total income of Rs. 2,77,698. On October 16, 1987, the assessee filed a revised return offering an additional income of Rs. 3,24,650 under the head "Other sources" with the remark "offered for assessment without explanation". Assessment was completed on not be treated as a voluntary one as the same was filed only after the Department had started enquiries with regard to the credit balances and with regard to the demand draft accounts. THE Assessing Officer held the view that the second return filed by the assessee could not be considered as a revised return under Section 139(5) as the same was filed after the Department had started making enquiries and that the mere fact that the additional income offered by the assessee was accepted would not absolve the assessee of the liability for penalty in the light of the decision of the Madras High Court in CIT v. Krishna and Co., 1979 120 ITR 144. On this view of the matter, the Assessing Officer levied a penalty of Rs. 1,62,325 which is 100 per cent, on the amount of tax sought to be evaded. THE assessee carried the matter in appeal. After adverting to the circumstances in which a second return was filed by the assessee, the Commissioner of Income-tax (Appeals) (in short "the CIT(A)"), upheld the view of the Assessing Officer that the second return could not be treated as a revised return under Section 139(5). On the view that the filing of the second return was not voluntary and was not inspired by bona fide motives, the appellate authority upheld the levy of penalty.

(3.) AT this juncture, it is necessary to refer to the legislative history so far as Section 271(l)(c) is concerned. There are three stages of amendment of Section 271(l)(c). The periods are (a) prior to April 1, 1964, (b) April 1, 1964 to March 31, 1976, and (c) after April 1, 1976. Originally, the word "delibe- rately" existed which was omitted by the Finance Act, 1964, with effect from April 1, 1964. An Explanation was inserted at the end of Sub-section (1) of Section 271 by the said Finance Act (Section 40 of the Finance Act, 1964). In between, by the Finance Act, 1968, the base for levy of penalty became the amount of concealment as against the quantum of tax sought to be avoided under the then existing provisions. Subsequently, further amendments were brought by the Taxation Laws (Amendment) Act, 1975, (Section 61 of the said amending Act). Four Explanations were substituted for the Explanation introduced by the Finance Act, 1964. The effect of the said amendment, so far as we are concerned, is that where, in respect of facts material to the computation of the total income of the assessee, he furnishes no explanation or he cannot substantiate the explanation offered by him or the explanation offered by him is found to be false, the relevant income shall be deemed to be his concealed income. Another change was the base for levy of penalty for concealment. The base which was made, viz., the concealed income, was again changed to tax sought to be evaded. We are not very much concerned with the other changes. The effect of the amendment with effect from April 1, 1976, is that a deeming provision was introduced. The provision at the relevant time read as follows :