COMMISSIONER OF INCOME TAX Vs. POPULAR LUNGHI CO

JUDGEMENT

(1.) THE assessee is a firm carrying on business in the manufacture and sale of khailees. THE years of assessment with which we are concerned are 1967-68, 1968-69 and 1969-70. THE reference relates to levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961, hereinafter referred to as the Act. THE factual situation for all the assessment years are common, and hence we thought fit to notice the facts for the assessment year 1967-68 and it is not necessary to burden the judgment with the factual situation for the other two assessment years. THE assessee filed return of income for the assessment years 1967-68, 1968-69 and 1969-70 on May 30, 1968, March 28, 1969 and February 9, 1970, disclosing income of Rs. 95,924, Rs. 1,37,645 and Rs. 2,39,832, respectively. THE assessment for all the years were completed on March 23, 1971, January 10, 1972 and on January 10, 1972, respectively. On September 19, 1972, subsequent to the completion of assessment for all the assessment years there was a survey operation of the business premises of the assessee under Section 133A of the Act. THE report and documents found during the course of survey according to the Department, revealed that the assessee was carrying on a money-lending business outside its books of account and the income from the said source was not disclosed in the original returns filed by the assessee for the said three assessment years. THE assessee contended otherwise stating that the materials found during the survey did not reveal any such income from money-lending business. However, the assessee approached the Commissioner of Income-tax on September 19, 1972, with a settlement petition, stating that he was carrying on money-lending business and lending money for the past three years and had not maintained any books of account for the money-lending business and the transactions were not accounted in the regular books of account in respect of the money-lending business carried on by him. THE assessee thereafter requested the Commissioner of Income-tax to direct the Income-tax Officer to settle the assessment suitably not only for the three assessment years under consideration but also for the subsequent assessment years, namely, 1970-71, 1971-72, 1972-73 and 1973-74. He also prayed that the penalty may not be levied and even if it is levied it may be waived. THE assessee in the settlement petition voluntarily offered for assessment a total sum of Rs. 4 lakhs which may be spread over and assessed during the seven assessment years commencing from 1967-68 to 1973-74. Since the assessments for the assessment years 1967-68, 1968-69 and 1969-70 were already completed by the time the survey took place and by the time when the assessee approached the Commissioner of Income-tax with settlement of his assessment of income, the Income-tax Officer reopened the assessments for the three assessment years 1967-68, 1968-69 and 1969-70 under Section 147(a) of the Act. THE assessee filed returns of income for the said assessment years on July 17, 1976, disclosing, inter alia, the income from money-lending business was Rs. 4,500 for 1967-68, Rs. 19,600 for 1968-69, Rs. 34,000 for 1969-70, which had not been disclosed in the original returns filed by it. THE Income-tax Officer completed reassessments on March 31, 1978, bringing to tax the income from the money-lending business, which were neither disclosed by the assessee in the original returns nor assessed by him in the original assessments made by him. THE Income-tax Officer also initiated proceedings for levy of penalty under Section 271(l}(c) of the Act and issued a show-cause notice to the assessee why the penalty should not be levied for concealment of income, and the assessee filed a written representation dated March 23, 1980, wherein the assessee has stated that the facts and circumstances were the same for the assessment years 1970-71 to 1973-74, and the Appellate Tribunal had ordered to cancel the penalty levied for those assessment years on the ground that the assessee had voluntarily disclosed the income in the original returns filed and therefore there is no case for the levy of penalty under Section 271(1)(c) of the Act. THE Income-tax Officer, however, did not accept the explanation offered by the assessee, and he held that it is not correct to state that the assessee voluntarily brought to the notice of the Department the income from money-lending business. According to the Income-tax Officer only on the basis of the survey operation conducted by the Department, the income from money-lending business carried on by the assessee came to light and the documents found at the time of survey showed that the assessee was carrying on money-lending business outside the books of account disclosed to the Department. He, therefore, held that but for the survey operation, the assessee would not have come forward with the disclosure petition, and only as a result of the information in the possession of the Department consequent on the survey operation the assessee came forward with the voluntary disclosure petition disclosing that the assessee had been doing money-lending business outside his books of account. THE Income-tax Officer, therefore, came to the conclusion that the assessee had concealed the income from money-lending business carried on by it in the original returns filed by it, and whatever may be the subsequent conduct of the assessee the return originally filed showed that the assessee filed the returns with the knowledge that they were false returns and levy of penalty was called for. THE Assessing Officer also invoked the provisions of Explanation to Section 71(1)(c) of the Act and held that the assessee had not discharged the onus cast upon the assessee and held that since the income from money-lending business was not disclosed in the original returns, the case called for the levy of penalty and he levied the maximum penalty for all the assessment years.

(2.) THE assessee appealed to the Commissioner of Income-tax (Appeals) against the orders of penalty for all the assessment years. On behalf of the assessee the correctness of the observation made by the Income-tax Officer that the full facts came to the Department only on the basis of the search was disputed. THE Commissioner of Income-tax (Appeals), therefore, called upon the authorised representative of the Department to prove the statement made by the Income-tax Officer that only on the basis of the materials found in the survey operation the income from money-lending business came to light. THE Commissioner of Income-tax (Appeals) noticed that the Departmental representative conceded the position that the information regarding the money-lending business came from the assessee without being detected first by the Department, and he recorded a categorical finding that the officer was not correct in his statement that the assessee disclosed the money-lending business consequent on the detection of the concealment of income by the survey operation. THE finding of the Commissioner (Appeals) has become final. THE Commissioner of Income-tax (Appeals) went into the merits of the case and he found that the penalty levied on the assessee cannot be justified in view of the fact that the assessee voluntarily offered for settlement of income for the assessment years 1967-68, 1968-69 and 1969-70. THE Commissioner of Income-tax (Appeals) came to the conclusion that the settlement petition covered all the assessment years, namely, 1967-68 to 1973-74, and there is nothing on record to persuade him to hold that the facts for the assessment years 1967-68 to 1969-70 were in any way qualitatively different from those present for the assessment years 1970-71 to 1973-74 wherein the Tribunal after considering the entire materials cancelled the penalties. He, therefore, held that the levy of penalty was not justified and cancelled the penalty for all the three assessment years, and allowed the appeals preferred by the assessee. THE Revenue carried the matter in appeal before the Income-tax Appellate Tribunal. THE Tribunal was of the view that there was no difference between the factual situation found for the present three assessment years and the other four assessment years for which the Tribunal had already cancelled the penalty. An argument has been advanced on behalf of the Department before the Tribunal that there is a difference on the facts and circumstances as in the three assessment years under consideration, the original returns were filed and assessments were also completed and the revised returns were filed after the completion of the original assessment. THE Tribunal, however, did not accept the contention urged on behalf of the Department as according to it for the assessment year 1970-71 for which the penalty was also cancelled by its earlier order, the original return was filed on January 24, 1972, without disclosing the money-lending business and subsequent to the survey operation carried on by the Income-tax Officer, the assessee filed the revised return voluntarily disclosing the income from the money-lending business. THE Tribunal, therefore, came to the conclusion that the mere fact that the Income-tax Officer , had completed the original assessments and the assessee had filed the revised returns only after the original assessment would not better the position of the Department, and following its earlier order it cancelled the penalty and upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the appeal preferred by the Department.

(3.) MR. C. V. Rajan, learned counsel for the Revenue, brought to notice the decision in CIT v. C. J. Rathnaswamy [1997] 223 ITR 5, wherein this court has held that where the assessee agreed for addition of the undisclosed income, but did not agree for addition on the basis that the undisclosed income was his concealed income, in the absence of any material to show the assessee had concealed the income and furnished inaccurate particulars this would not warrant the levy of penalty.