Income Tax Appellate Tribunal - Pune
Yeshwant B. Chigteri vs Assistant Commissioner Of Income Tax on 8 December, 1999
Equivalent citations: [2001]75ITD377(PUNE)
ORDER
Singhal, JM The only issue arising out of this appeal relates to the levy of penalty, under section 271(1)(c) of Income Tax Act, 1961 for concealment of particulars of income.
2. The brief facts giving rise to this appeal are these. The assessee was being assessed since long upto assessment year 1983-84 on the salary income as he was working with Sandvik Asca Limited and Rapicut Tools Pvt. Ltd. Thereafter, he did not file any return of his income which provoked the department to carry out search action under section 132 on 23-1-1992. In respect of assessment year 1989-90, it was found that assessee had earned a substantial income on the sale of shares. Hence, notice under section 148 was issued in response to which thse return was filed on 31-8-1992 declaring income of Rs. 4,77,100 as under :
Rs.
Income from salary 75,900 Capital gain on sale of shares 2,61,615 Income from other sources 1,70,911 Total 5,08,426 Deductions under Chapter VI-A 31,330 Total income 4,77,100 The assessment was completed on the total income of Rs. 4,98,200 vide order dated 28-2-1994 in the course of which penalty proceeding under section 271(1)(c) was initiated.
3. In response to the show-cause Notice, it was submitted on behalf of the assessee vide letter dated 19-8-1994 that there was no mala fide intention to conceal the particulars of income as the sum of Rs. 1,02,000 was paid by way of advance tax attributable to the capital gain and further tax was deducted at source on salary and dividend income. The reasons for failure to file the return was explained as under :-
"Sir, in the year 1985-86, your assessee left the job with Rapicut Tools Pvt. Ltd. and undertaken big project to manufacture the Carbon, Tools by setting up a Public Ltd. Co. Rapicut Carbide Ltd. He took this challenge against a multination FERA Company Sandvik Asia. He wanted the country to save the drain of Foreign Exchange. While doing so he has to undergo number of problems and has to face the deadlock in the management of this company.
Sir, thus the failure on part of the assessee was mainly because he was engrossed in taking out the company namely Rapicut Corbid Ltd. out of the losses when he was occupying the position as Joint Managing Director. Sir, your assessee Mr. Y.S. Chigteri is a Technocraft and on the basis of his individual ability, he collected the contributions from his friends and well wishers for this project. This project was to save the outflow of the income of the nation to the other countries (FERA Companies Sandvik Asia). It was a big challenge before him and has taken it as a life challenge to establish this company. To achieve this he paid a big cost of his health and family and even he was big failure for all his personal matters. In his devotion to this company, practically he lost everything in the life. It is under these circumstances, he committed a mistake of not filing and attending his personal income-tax matters."
However, the explanation of the assessee was rejected by the assessing officer by observing as under :-
"It was only the search action and subsequent issue of notice which forced the assessee to file his return of income. Mere payment of advance-tax during the financial year does not confer the right to the assessee not to file the return of income. If all these facts are taken into account, it proves beyond doubt the fact, that there was concealment of income at least to the extent of capital gains earned by the assessee. The case records show that the assessee has earned capital gains of Rs. 2,86,470 on sale of shares of Rapicut Carbide Ltd. There is nothing on record to show that the assessee would have disclosed the entire capital gains even if the search action would not have taken place. In the light of these facts, the income earned by the assessee by way of' capital gains which was not disclosed by him by filing the return, will have to be treated as concealed income."
in view of the above observations, he imposed the penalty of Rs. 1,50,395 being the minimum penalty for concealment of the particulars of income on account of failure to file the return.
4. The matter was carried before the Commissioner (Appeals) who, though, agreed with the contention of assessee that non-furnishing of return does not tantamount to concealment of particulars of income is well supported by the judicial opinion available on this issue ie. the decision of Madras High Court in the case of S. Santhosa Nadar v. First Addl. Income Tax Officer (1962) 46 ITR 411 (Mad), still did not accept the same by observing that income-tax code cannot be static one. According to her, it is to be understood in the context of the facts in a particular case. Further, changes in section 271 brought by Direct Tax Laws (Amendment) Act, 1989 should be taken into consideration. The decision of the Madras High Court in the case of S. Santhosa Nadar (supra) was distinguished by her in the following words :
"In the new scheme, penalty for failure to file the return under section 271(1)(a) has been deleted. Section 271 (1)(b) also does not exactly, require the filing of the return since penalty is exigible even for failure to comply with the notice under section 142(1) requiring the assessee to file the return. Section 271(1)(c) continues in its earlier form. Thus section 271 has changed materially. In Santhosa Nadar (supra) it was the setting in which sub-clause (c) was placed that it was concluded that a return was to be furnished before concealment could be said to be established. The same conclusion can in my view no longer be derived from the present setting of section 271.
The second reason which prevailed with the Hon'ble judges in the case of Santhosa Nadar (supra) was the quanturn of penalty. But this also is no longer linked to the difference in tax between the return income and the assessed income. Therefore, in the new dispensation, the quantum of penalty in case of concealment would be a sum which shall not be less than but which shall not exceed three times of amount of tax sought to be evaded by reason of concealment' of particulars of his income or furnishing of inaccurate particulars of such income."
She then discussed the meaning of the word "conceal" and held that attempt to hide the income or portion thereof from the knowledge of the income-tax authorities would tantamount to the concealment. On this reasoning, she was of the view that by non-furnishing of the return would tantamount to concealment of particulars of income. The contention of the assessee that such construction would render the provision of Explanation 3 to section 271(1)(c) redundant was also rejected by holding that this Explanation is applicable to new assessees while the old assessees would be covered by the main provision of section 271 (1)(c). Accordingly,, she confirmed the penalty levied by the assessing officer.
5. The learned Counsel for the assessee has assailed the order of the Commissioner (Appeals) by raising various contentions namely - (1) that assessing officer has not recorded any satisfaction in the assessment order as envisaged under section 271(2) that the concealment of particulars of income has to be seen with reference to the return and there is no finding that any income was concealed in the return filed by the assessee, (3) none of the Explanation to section 271(1)(c) was invoked by the assessing officer and therefore, burden would be on the revenue to prove positively the concealment of particulars of income which has not been discharged. Mere failure of the assessee to file the return would not tantamount to concealment of particulars of income, (4) no reason has been given why only one item of capital gain was chosen by the lower authorities for invoking the provisions of section 271(1)(c) though the assessee had also not filed any return of income in respect of salary and dividend income and (6) there was no mala fide intention to conceal the particulars of income as is apparent from the fact that assessee had paid advance lax in respect of the capital gain. On the other hand, the learned Departmental Representation has relied on the reasonings given by the Commissioner (Appeals) and therefore need not be repeated.
6. Rival contentions of the parties have been considered carefully. The scheme of the Act has also been gone into. The issue for consideration before us is whether penalty for concealment of particulars of income call be levied under section 271(1)(c) where it is shown that assessee would not have filed the returns but for the issue of notice under section 148. In other words whether non-furnishing of return within the stipulated period under section 139 tantamounts to concealment of the particulars of income. The words "concealment" or "conceal" have not been defined in the Income Tax Act, 1961. The meanings of those words as defined by various dictionaries are stated below:
"As per Webster's Dictionary:
Conceal
-
To prevent disclosure or recognition of, avoid revealation of, refrain from revealing, -withhold knowledge of, draw attention from, treat so as to be unnoticed, to place out of sight, withdraw front being observed, shield from vision or notice.
Concealment
-
The act or practice of concealing, the state of being concealed, the practice or fact of concealing what ought to be revealed, improper secrecy, out-of-the-way knowledge, secret information, a means of concealing, a hiding place.
As per Black's Law Dictionary:
Conceal
-
To hide, secret, or withhold from the knowledge of others, to withhold from utterance or declaration, to cover or keep from sight, to hide or withdraw from observation, or prevent discovery of.
Concealment
-
To conceal, a withholding of something which one knows and which one, in duty, is bound to reveal. A "concealment" in law of insurance implies an intention to withhold or secret information so that the one entitled to be informed will remain in ignorance."
The perusal of the above definitions shows that these words can be used by the Legislature in the widest possible sense. It may include the act of commission as well as act of omission. But it is well settled legal position that words in a given statute are to be construed in the context in which they are used. The word 'concealment' is qualified by the words "of particulars of income". So one can be said to have concealed the particulars of income if he is under an obligation to disclose the same. The reason is obvious. Penal provisions are to be construed very strictly. No person can be penalised unless he is found guilty on account of his failure to perform his statutory obligation.
7. Section 139 casts an obligation on the assessee to furnish the particulars of income in the return to be filed by him. Sub-section (1) of section 139 provides that every person whose total income exceeds maximum amount which is not chargeable to tax shall before the due date furnish return of his income in the prescribed form verified in the prescribed manner setting forth such other particulars as may be prescribed. Sub-section (3) applicable in the case of loss, sub-section (4A) applicable in the case of Trust and sub-section (4B) in the case of political party also provide furnishing of the return in the similar manner as prescribed under section 139(1). Section 142 authorises assessing officer to issue notice to the assessee who has failed to file a return within the time allowed under section 139(1) directing him to file the return in the similar manner. Similar provisions are made in respect of the return to be filed by the assessec under section 148. The rule 12 of Income Tax Rules, 1962 provides for furnishing of return in various forms depending upon the status of the assessee. The said returns provide the particulars of income which are to be furnished in respect of various types of income assessable under various heads. The notes appended to the returns also prescribed the various details of income to be furnished by the assessee along with the return. The combine reading of the aforesaid provisions, rules and the prescribed returns shows that particulars of income are required to be furnished by the assessee in the return or along with the return. No other manner is prescribed by the statute for disclosing the particulars of income. The context in which language is used by the Legislature shows that it is the act of commission of default which is subject to penalty and not act of omission. Therefore, we are of the considered opinion that concealment of particulars of income, if any, has to be seen with reference to the return of income and not in any other manner. If the assessee files the return without disclosing the particulars of income, then it can be said that assessee had concealed the particulars of income. But where no return is filed, it is difficult to hold that assessee had concealed the particulars of income.
8. This view is fortified by the decision of the Supreme Court in the case of Brij Mohan v. CIT(I 979) 120 ITR (SC) wherein it was held that the concealment of the particulars of income was effected by the assessee when he filed the return of total income and therefore, the law as prevailed on that date would be applicable for levy of penalty for concealment of particulars of income. The only other judicial opinion available directly on the point disputed before us is the decision of Madras High Court in the case of S. Santhosa Nadar (supra) wherein it has been held where no return is filed, the case could not fall under section 28(1)(c)". The provisions of section 271(1)(c) are in pari materia with the provisions of section 28(1)(c) of the 1922 Act. Therefore, the ratio laid down by the Madras High Court would be applicable to the case faling under section 271(1)(c) of Income Tax Act, 1961. The relevant observations of Justice Srinivasan in the aforesaid case are being reproduced for the benefit of this order :
"It is manifest that a failure to furnish a return of income which an assessee is required to furnish by a notice 'given under sub-section (1) or (2) of section 22 would fall within section 28(1)(a). The Legislature has provided for various categories of failures and wilful omissions. Section 28(1)(a) covers cases of failure to make a return of income in response to a general or special notice. Section 28(1)(b) takes note of cases of failure to comply with a notice under section 22(4) calling for the production of accounts and documents or other information required by the Income Tax Officer. But this again has reference to case where a return has been made or a notice under section 22(2) has been issued. It also takes note of failure to comply, with a notice under section 23(2) of the Act requiring the presence of the assessee or the person who made the return. When we come to section 28(1)(c), it deals specifically with the concealment of "particulars of income" or the deliberate furnishing of inaccurate "particulars of income." In the setting in which this sub-clause finds place, it is impossible to construe section 28(1)(c) except as relating to a case where a return has been filed but from which return, particulars of income have been omitted or any particular's have been deliberately inaccurately furnished. The use of the expression "particulars of his income" and "particulars of such income" would be wholly inapposite in a case where no return has at all been filed; such a case would clearly come within the scope of section 28(1)(a) alone.
The further penal provisions of section 28(1)(c) appear also to support the above view. In a case of a total failure to furnish a return, the penalty which may be imposed upon the assessee would be an amount not exceeding one and a half times the income-tax and super-tax, if any, payable by him, in addition to any tax payable by him. But in a case which comes under section 28(1)(c), in addition to any tax payable by him, the maximum penalty that can be imposed is a sum not exceeding one and a half times the amount of income-tax and super-tax, if any, "which would have been avoided if the income returned by such person had been accepted as the correct income". Not only, has the Legislature linked the quantum of the penalty to the amount of tax which would have been avoided by the concealment or furnishing of inaccurate particulars, but the concluding portion of section 28(1) itself indicates that in the cases falling under sub-clause (b) or sub-clause (c), there should have been a return made by such person which would have been accepted as correct. For my part, there can be no clearer indication that in cases that can be brought within the scope of section 28(1)(b) and section 28(1)(c), there must be a return. If there is no return at all in fact or in law, the case would not fall under any of the sub-sections except sub-section (a) of section 28(1)."
The aforesaid view had been accepted with reference to section 271(1)(c) of 1961 Act by the Karnataka High Court in the case of Addl. CIT v. C. V. Bagalkoti & Sons (1978) 115 ITR 131 (Bom) by observing as under:-
"The offence of concealment of particulars of income or furnishing of inaccurate particulars of such income is committed when a return is filed. The mere non-filing of a return may not be considered either concealment of income which is liable to tax or furnishing inaccurate particulars regarding it. Vide S. Santhosa Nadar v. First Addl. Incometax Officer ( 1962) 46 ITR 411 (Mad.)."
The aforesaid judicial opinion remains undisturbed till 1-4-1989 when Explanation 3 was inserted by, the Legislature. So prior to 1-4-1989 this judicial opinion should be given full respect and cannot be discarded by any authority giving one or the other reasons. The only question now remains whether by insertion of Explanation 3, the aforesaid judicial opinion is nullified.
9. Explanation 3 to section 271(1)(c) provides that where any person not previously assessed fails without reasonable cause to furnish a return as required under section 139 within the period specified under section 153(1)in respect of any assessment year commencing on or after 1-4-1989 and until expiry of aforesaid period, no notice has been issued to him under section 142(1) or section 148 and the assessing officer or Commissioner (Appeals) is satisfied that assessee has taxable income, then such person shall be deemed to have concealed the particulars of income. This Explanation is not applicable to the exiting assessees. It is therefore clear beyond doubt that even the Legislature has not completely nullified the view of Madras High Court. Therefore, the said decision would still be applicable where default of non-furnishing of return is committed by, the existing assessees. Had the Legislature intended to raise such presumption in respect of existing assessees, it would have specifically provided so. The view of Madras High Court was very well known to the Legislature. There was no contrary view of any other High Court on this issue. If the Legislature intended to nullify completely the effect of such decision, it could have included the existing assessee also within the ambit of the aforesaid Explanation 3. Therefore, even after 1-4-1989, it cannot be said that non-furnishing of return within the stipulated period under section 139 by the existing assessees would tantamount to concealment of the particulars of income.
10. In view of the aforesaid discussion, it is held that there cannot be concealment of the particulars of income on account. of non-furnishing of return within the stipulated time under section 139 except in the circumstances mentioned in Explanation 3 to section 271 (1)(c). In the present case the income in respect to which penalty has been levied was duly disclosed in the return filed under section 148. The assessee being existing assessee is also not covered by the said Explanation. Therefore, it cannot be said that the assessee concealed the particulars of income on account of non-furnishing of return. There may be various reasons for failure to file the prescribed return. The assessee has already been charged with interest under section 234A for such default. In our opinion, the case of assessee does not fall within the four corners of penal provisions. Accordingly, the order of Commissioner (Appeals) is hereby quashed and the penalty levied under section 271 (1)(c) is hereby cancelled.
11. In the result, appeal of assessee is allowed.