COMMISSIONER OF INCOME TAX Vs. BRINDAVAN HOTEL

JUDGEMENT

(1.) As per the direction of this court, the following question has been referred by the Income-tax Appellate Tribunal under section 256(2) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that there is no concealment of income in spite of discovery of suppression of sales from the seized material of the assessee ?" In fact, in the reference application filed by the Department under section 256(1) before the Tribunal, certain other questions including a comprehensive question as to whether the Tribunal was justified in holding that the provisions of section 271(1)(c) were not attracted in spite of suppression of sales was sought to be referred. But, in the section 256(2) application filed before this court, this question was given up.

(2.) The assessment years involved are 1970-71 and 1971-72. The respondent-assessee is a firm carrying on hotel business in Hyderabad city. For the year 1970-71, the assessment was made on a total income of Rs. 25,000 as against the income of Rs. 5,871 returned by the respondent. The respondent did not produce and account books stating that they were lost in the separate Telangana agitation. Hence, the Income-tax Officer estimated the net income from Boarding and lodging at a sum of Rs. 25,000 to which the assessee agreed. On 19/11/1971, the Department conducted a search of the business premises. The scrutiny of books and vouchers seized during the search revealed suppression of sales, short-totalling of the figures in the ledger, short-postings from the collection register and short-posting of bills-in all to the tune of Rs. 56,784. Certain unaccounted payments made to various parties were also noticed. Proceedings were, therefore, initiated to reopen the assessment. In response to the reassessment notice, the assessee filed a return declaring an income of Rs. 25,000. The Income-tax Officer, having found that there was no basis for the returned income of Rs. 25,000 and that the books of account maintained by the assessee did not reveal the correct picture, proceeded to estimate the income. By taking the net profit at 25% and after giving some allowance for the possible dislocation in the business due to the Telangana agitation, the Income-tax Officer estimated the income at Rs. 1,45,000. On appeal, the Appellate Assistant Commissioner held that the estimate of the income was on the high side and he reduced the income figure to Rs. 75,000. Both the assessee and the Department filed appeals to the Income-tax Appellate Tribunal. The Tribunal dismissed the assessee's appeal and partly allowed the Departmental appeal. The Tribunal, while upholding the view of the Income-tax Officer that the case called for an estimate, determined the income at Rs. 82,500. The Tribunal adopted the percentage of net profit at 15%. Thereafter, penalty proceedings were initiated under section 271(1)(c) for concealment of income. The Inspecting Assistant Commissioner levied a penalty of Rs. 57,500. On appeal to the Tribunal the Tribunal cancelled the penalty, stressing the aspect that conscious concealment of income had been made out by the Department.

(3.) For the assessment year 1971-72, the assessee-firm filed a return declaring an income of Rs. 27,059. For this year also, on verification of certain subsidiary account books seized in the course of search conducted on 19/11/1971, the Income-tax Officer found suppression of receipts including lodging collections to the tune of Rs. 52,308. The Income-tax Officer also found non-accounting of payments made to certain parties and inflation of certain expenditure. According to the Income-tax Officer, the concealed income even as per the books of the assessee was Rs. 16,544. In the course of hearing of the case under section 143(2), the assessee filed a revised income of Rs. 50,000. The assessee admitted the omission of receipt for which he tried to shift the responsibility on his staff in charge of preparation of the accounts. The Income-tax Officer felt that the books did not disclose the correct income and that it was a case for making an estimate. The estimate was made more or less on the same basis as for the previous year and the taxable income was arrived at Rs. 1,60,000. On appeal, the Appellate Assistant Commissioner reduced the income to Rs. 85,000. On further appeals filed by the assessee and the Department before the Income-tax Appellate Tribunal, the Tribunal dismissed the assessee's appeal and partly allowed the Department's appeal. The Tribunal determined the taxable income at Rs. 90,000. Thereupon, the Inspecting Assistant Commissioner initiated penalty proceedings under section 271(1)(c) and levied a penalty of Rs. 62,941. On appeal to the Tribunal, this order was set aside and the penalty cancelled.