COMMISSIONER OF INCOME TAX Vs. JAYASHANKAR TRADERS

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal has referred the following questions for the opinion of this court under s. 256(2) of the I. T. Act, 1961 :

(2.) THE assessment years covered by the three tax cases are 1965-66, 1966-67 and 1968-69. THE assessee, M/s. Jayashankar Traders, is a partnership firm carrying on business in machinery, stores, spares, looms, etc. On October 19, 1963, an agreement was entered into between M/s. Ranee Mills and one S. R. M. S. Narrayan Chettiar. Under the said agreement, certain properties including some machinery and 312 looms were to be sold by Ranee Mills to Narayanan Chettiar's nominee or nominees, for a sum of Rs. 12,01,000. On November 16, 1963, the said Narayanan Chettiar requested M/s. Ranee Mills to sell some of the machineries set out in list attached to the letter to the assessee or its nominee or nominees for a sum of Rs. 4,55,000. 312 looms are admittedly included in the said list. As a result of this requisition by Narayanan Chettiar, M/s. Ranee Mills sold the looms to the assessee. However, delivery of the property sold was taken on behalf of the assessee by Narayanan Chettiar himself. While so, the assessee filed returns for the year 1965-66 disclosing a loss of Rs. 19,884. For the year 1966-67, the assessee returned an income of Rs. 27,870 and for the year 1968-69, a sum of Rs. 22,960. THE ITO held that the assessee had sold certain looms and omitted to account for the profits derived by the sale of looms. THE ITO, therefore, included a sum of Rs. 1,30,814, Rs. 49,589 and Rs. 27,575 as admitted profits derived by the assessee by the sale of looms for the assessment year 1965-66, 1966-1967 and 1968-69. Accordingly, he determined the total income for the assessment year 1965-66 at Rs. 1,36,814, for the assessment year 1966-67, are Rs. 27,869 and for the assessment year 1968-69 at Rs. 75,550. THE ITo also initiated penalty proceedings against the assessee for the three assessment years on the ground that he had concealed the income for the assessment years 1965-66 and 1966-67 to Rs. 1,24,250 and Rs. 25,091 respectively. As the matter fell under the proviso to s. 271(1)(c) of the I. T. Act, 1961, the ITO referred the case to the IAC.

(3.) IN CIT v. Ramdas Pharmacy , the assessee omitted to disclose a sum of Rs. 28,618 in the original return. However before the assessment was completed, the assessee filed a revised return making a true disclosure of the said income also. The ITO initiated penalty proceedings under s. 28(1) (c) of the INdian I. T. Act, 1922, for alleged concealment of income and furnishing of false particulars. Before this court on a reference under s. 66(1) of the 1922 Act it was contended on behalf of the assessee that penalty could be levied only if the ITO had acted upon the false return and completed the assessment and that inasmuch as a fresh return had been filed by the assessee, the penalty proceedings could not invoked under s. 28(1) (c) of the 1922 Act with reference to the omission or concealment in the original return. The assessee in this context relied upon the decision of the Supreme Court in CIT v. Raman Chettiar [1965] 55 ITR 630. On the other hand, an equally extreme contention was raised on behalf the Revenue that the filing of a second return was of no consequence at all while considering the liability of the assessee under s. 28(1) (c) of the 1922 Act. Ramanujam J., speaking for the Bench, observed as follows (p. 289) :