INDIRA CHEMICAL AGENCY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee was a partnership firm with six partners carrying on business in the purchase and sale of chemicals and dye stuffs. This firm was dissolved on July 14, 1971. But still there were transactions which resulted in the income assessable in the assessment year 1963-64, for which the relevant previous year ended on 31st March, 1963. In the present reference we are concerned with the assessment years 1959-60 and 1963-64. In making the assessment for the assessment year 1963-64, the ITO rejected the book results and estimated the income at Rs. 5,00,000 as against Rs. 1,27,540 returned by the assessee. On appeal, the AAC set aside that assessment with a direction to the ITO to re-do it. THEreafter, the assessee filed a petition on July 24, 1969, under Section 271(4A) agreeing to an addition of Rs. 50,000 for the assessment year 1959-60 and Rs. 71,000 for the assessment year 1963-64. It was, however, found that the capital account as on April 1, 1963, showed an excess of assets over liabilities at Rs. 5,05,624 whereas if the books were correctly maintained the excess should have been only Rs. 2,14,787. THE difference between the said two amounts, namely, Rs. 2,90,837. was not satisfactorily explained. At that stage, the assessee by a letter dated February 26, 1970, agreed for additions being made for the assessment years 1959-60 and 1963-64, THE additions so offered came to Rs. 1,42,413 for 1959-60 and Rs. 2.00,538 for 1963-64. THE leviability of penalty with reference to the concealed income assessed on the assessee was referred to the IAC who held that the assessee was guilty of concealment of income and accordingly levied penalties of Rs. 55,000 and Rs. 90,000 respectively for the assessment years 1959-60 and 1963-64. THE assessee thereafter appealed to the Income-tax Appellate Tribunal and the contentions taken before it were that a combined reading of Sections 189(3) and 189(4) and Section 274(1) made it clear that, unless a notice was served on each one of the partners and they were given a reasonable opportunity of being heard, the levy of penalty would be illegal, that by not serving individual notices on each one of the partners and not giving a reasonable opportunity of being heard, there was a violation of the principles of natural justice, and that the firm has not concealed any income or furnished inaccurate particulars thereof when a sum of Rs. 1,42,413 and another sum of Rs. 2,00,538 came to be offered for assessment. THEse contentions were rejected by the Tribunal by its order dated 31st August, 1972. It is against the said order of the Tribunal that the assessee applied for and obtained a reference of the following questions for the opinion of this court, under Section 256(1) of the I.T. Act, 1961, hereinafter referred to as "the Act ":--

(2.) AS far as the first question is concerned, the Tribunal has referred to several decisions of the High Courts and the Supreme Court showing that assessments of a partnership firm could be made by serving notice on any one of the partners and that it was not necessary to serve individual notices on all the partners of the firm for making the assessment. In the view of the Tribunal the said decisions would equally apply to the levy of penalty. The learned counsel for the assessee submitted that notices should have gone to the individual partners of the firm. However, he was not in a position to sustain that contention, in view of the provisions of Section 283(2) of the Act which runs as follows:

(3.) ALL the questions are answered in the manner indicated above. The respondent will be entitled to his costs. Counsel's fee is Rs. 500 (Rupees five hundred only).