COMMISSIONER OF INCOME TAX Vs. RAMDAS PHARMACY

JUDGEMENT

(1.) THE assessee in both the cases is the same. THE assessee is an unregistered firm carrying on business in drugs and chemicals including tinctures and essences. For the assessment year 1952-53 the assessee-firm filed a return of income on September 11, 1952, disclosing a net profit of Ks. 54,107. THE Income-tax Officer felt that the gross profit disclosed by the assessee worked out to 8% which was considered to be too low when compared with the gross profit of 15% arrived at in the earlier years. He, therefore, scrutinised the account books of the assessee and discovered certain discrepancies between the assessee's books and the books of Messrs. Amrit Laboratories Ltd. from whom the assessee had purchased goods of the value of Rs. 4,00,000 odd. He also discovered huge deposits amounting to Rs. 2,79,112 in the bank accounts of some of the partners of the firm. When called upon to explain these discrepancies and the deposits, the partner representing the assessee-firm explained that there were some differences between the partners, that partners 4 and 5 were carrying on business in the same line in contravention of the partnership, that in order to offset extra profits, the remaining partners had prepared bills showing lesser sale price than the actual sale price and deposited the extra sale proceeds in the names of its three partners and that remittances to Messrs. Amrit Laboratories Ltd, were made with the extra cash but the entries were postponed to dates when the cash balance as per the cash book maintained were sufficient to accommodate the remittances already made. It was further explained that all the bank deposits in the names of some of the partners except to the extent of Rs. 28,618 have been accounted for in the firm's accounts and that the said sum of Rs. 28,618 alone represented the sale proceeds that were not disclosed in the books but shared by partners 1 to 3 without the knowledge of the other two partners. THE assessee-firm sent a letter dated May 16, 1953, stating that the profit actually made by the firm during the relevant year amounted to Rs. 82,725 and on June 6, 1953, the assessee-firm actually filed a revised return disclosing the said income of Rs. 82,725. THE Income-tax Officer, however, did not accept either the explanation of the partner representing the firm or the revised return filed by the firm. He took the view that the difference Between sale price as per bills issued and the sale price actually recovered could not be ascertained with any accuracy and he, therefore, estimated the total sales at Rs. 13,50,000 by adding Rs. 2,90,000 as suppressed sales to Rs. 10,40,932, the sale price actually disclosed, and worked out the gross profit thereon at 15%, which resulted in an addition of Rs. 84,306 to the income of Rs. 54,107 originally returned by the firm.

(2.) THE Income-tax Officer also initiated proceedings against the firm under Section 28(1)(c) of the Income-tax Act, 1922, for alleged concealment of income and furnishing of false particulars. Meanwhile, the firm was dissolved on September 9, 1952, and as such the notice under Section 28(3) was served only on some of the partners of the erstwhile firm. THE partners contended that no penalty was leviable on a dissolved firm and that there was no concealment of income by it, inasmuch as the firm had filed a revised return disclosing its entire income. THE Income-tax Officer negatived these contentions and held that even a dissolved firm was liable to pay penalty and that there was in fact concealment of income by the assesssee-firm. He levied a penalty of Rs. 60,000 under Section 28(1)(c) of the Income-tax Act by his order dated October 10, 1961.

(3.) AS regards the second contention that there was no concealment of income so as to attract Section 28(1)(c), the Tribunal took note of the facts that the departmental officers had accepted the assessee's case that all the deposits in the banks had already been credited in the sales account except the sum of Rs. 28,618 which had been divided between the three partners without showing it in the bills, and without the knowledge of the other two partners and that the said amount of Rs. 28,618 which was kept off from the sales account had been shown in the revised return. The Tribunal was of the view that the conduct of the assessee in filing a revised return bringing in the entire excess sale proceeds divided between three partners without bringing it into the sales account should be taken into consideration in applying the provisions of Section 28(1)(c) of the Act, that the Income-tax Officer had ignored the revised return while passing the penalty order, that Section 22(3) having given to the assessee a right to file a revised return at any time before the assessment is completed, and the assessee having come forward with true disclosure of his income in his revised return before the assessment is completed, it would be unreasonable and unfair to levy penalty upon the firm for not making a true disclosure in the original return. According to the Tribunal, the said Section 22(3) gave locus poenitentiae to the assessee and the revised return has taken the place of the original return and it is the revised return that formed the basis of the assessment in the case. Ultimately, the Tribunal held that the Income-tax Officer was not justified in ignoring the revised return for the purpose of determining whether there was concealment of income by the assessee and that if the revised return filed by the assessee wherein the assessee had come forward with the true disclosure of the entire sale proceeds that were shared by the three partners without the knowledge of the other two partners and without bringing them into account is taken into account, there was no room for the application of Section 28(1)(c) in this case. The Tribunal referred to the assessment order as also the appellate order of the departmental officers and expressed that the suppressed sale proceeds amounted to Rs. 28,618 only, as all the other bank deposits had been credited to the sales account, that even the sum of Rs. 28,618, which was suppressed from the original return, was disclosed in the revised return and that the addition made to the income of the assessee by the Appellate ASsistant Commissioner arose only upon the estimate of the gross profit. In its view, merely because the departmental officers made an addition on the basis of an estimate of the gross profit, it cannot be taken as a concealment of income by the assessee, and something more has to be proved to attract Section 28(1 )(c) of the Act. In that view the Tribunal cancelled the order of penalty.