COMMISSIONER OF INCOME-TAX Vs. VEDLAPATLA VEERA VENKATARAMIAH

JUDGEMENT

(1.) This reference has been made by the Income-tax Appellate Tribunal, Calcutta Bench, under Section 66(1) of the Income-tax Act at the request of the Commissioner of Income-tax, Madras. On the 15 August, 1938, the assessees filed a return of their income for the year 1938-39. On the 11 March 1939, the Income-tax Officer served a notice upon them under Secs.22(4) and 23(2) to produce the accounts of their money-lending business for the year 1937-38 and connected documents. The notice was to be complied with by the 20 of that month. The assessees produced for the inspection of the Income-tax Officer certain books of account but when he examined them he considered that the assessees possessed another set of books which they had suppressed. When the notice under Section 22(4) and 23(2) was served on the assessees Section 28 had not been amended. It was amended with effect from the 1 April, 1939. Sub-section 1(b) of Section 28 now provides that if the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal in the course of proceedings under the Act is satisfied that a person has without reasonable cause failed to comply with a notice under Sub-section (4) of Section 22, or Sub-section (2) of Section 23, he or it may direct him to pay by way of penalty, in addition to the tax payable by him, a sum not exceeding one and a half times the income-tax and super-tax, if any, which would have been avoided if the income as returned by the person had been accepted as the correct income.

(2.) On the 9 December, 1939, the Incam-tax Officer wrote to the assessees Stating that a separate set of account books had been kept and that these had not been produced. On the 4 January, 1940, he caused to be issued a fresh notice under Secs.22(4) and 23(2) requiring the assessees to produce the books of account for the years 1937-38, 1936-37 and 1935-36. The assessees did not comply with this notice. On the 31 January, 1940, the income-tax Officer assessed the assessees for the year 1938-39 on an income of Rs. 16,100. This assessment was under Section 23(4). Two days before this assessment was made the Income-tax Officer served a notice upon the assessees requiring them to show cause why a penalty should not be inflicted under Section 28(1)(b). The respondents appeared before the Income-tax Officer in compliance with this notice and he gave his decision in an order dated 21 December, 1940. He held that there had been default in Compliance with the notice to produce the books of account and consequently he imposed a penalty of Rs. 1,200 in addition to the amount of tax payable under the order of assessment.

(3.) The assessees challenged the correctness of both the orders of the Income-tax Officer in appeals to the Assistant Appellate Commissioner, who agreed with the Income-tax Officer. The assessees accepted the decision of the Assistant Appellate Commissioner so far as it concerned the assessment to income-tax under Section 33(4) but they appealed to the Income-tax Appellate Tribunal against the penalty which had been inflicted on them. The tribunal allowed the appeal on the ground that in connection with the imposition of a penalty for the non-production of books the existence of the books should be shown in some more tangible material than it may ordinarily be necessary for purposes of an assessment under Section 23(4).