Punjab-Haryana High Court
Commissioner Of Income-Tax vs Jaswant Rai. on 31 October, 1996
Equivalent citations: (1997)142CTR(P&H)49
JUDGMENT
N. K. AGRAWAL, J. :
These are three applications (ITCs Nos. 61, 65 and 66 of 1991) filed under s. 256(2) of the IT Act, 1961 (for short the Act), seeking a direction to the Tribunal to refer a similar question of law in each application for opinion of this High Court. The question sought to be referred in each of the aforesaid three applications is common though these three petitions relate to three different assessees but for the same assessment year. The question relates to the leviability of penalty under s. 271(1)(c) of the Act. The amount of penalty in each case is different. The following question of law has been sought to be referred in ITC No. 61 of 1991 (in the case of Shri Jaswant Rai for the asst. yr. 1984-85) :
"Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in law in upholding the order of the CIT(A) in cancelling the penalty imposed under s. 271(1)(c) amounting to Rs. 26,334 ?
The amount of penalty in ITC No. 65 of 1991 (in the case of M/s Raunaq Ram Om Parkash) is Rs. 1,28,296 and in ITC No. 66 of 1991 (in the case of M/s Miri Ram Prem Chand) is Rs. 59,448.
2. The assessee, Jaswant Rai, was a partner with one-third share in the partnership-firm M/s Miri Ram Prem Chand and with 15 per cent share in the partnership-firm M/s Raunaq Ram Om Parkash. Thus, he derived income mainly from his share as a partner in those two firms. Return of income was filed for the asst. yr. 1984-85 showing total income at Rs. 12,560. The accounting year of the assessee ended on 31st March, 1984. A search and seizure operation took place at the residential premises of the assessee Jaswant Rai on 28th July, 1984. Certain documents were seized. The assessee filed replies explaining those documents. He, however, agreed for certain additions as under :
Rs.
(i) On account of rental income of this year and the earlier years, as recorded in a note-book seized from the residential premises of the assessee (Rs. 8774 - Rs. 1462) for repairs at 1/6th) 7,312
(ii) On account of expenditure incurred on the marriage of the assessees son :
10,000
(iii) On account of investment made in the FDRs purchased in assessees name and in the names of the family members in this year and in the earlier years :
(Rs. 24550 - 7312 rental income utilized) 17,238
(iv) On account of deposits made in Banks in the names of wife and children in this year and the earlier years :
7,000 Total :
41,550 Assessment was made on the total income of Rs. 1,06,230. In addition of Rs. 41,550 brought to tax on account of undisclosed and unaccounted income, one-third share income from M/s Miri Ram Prem Chand (Rs. 35,297) and 15 per cent share income from M/s Raunaq Ram Om Parkash (Rs. 29,890) were thus assessed.
In the case of the partnership M/s Raunaq Ram Om Parkash, return was filed for the asst. yr. 1984-85 showing total income of the firm at Rs. 49,240. The accounting year of the firm ended on 31st March, 1984. Search and seizure operations had also taken place in the business premises of this firm on 28th July, 1984 and certain papers were seized. Replies were filed by the assessee, explaining those papers. However, the assessee-firm agreed, during the course of assessment proceedings, for the following additions :
Rs.
(a) On account of profit at the rate of 12.5 per cent on unaccounted sales of machinery parts at Rs. 2,00,000, as recorded in a document seized from the residence of the partner, Jaswant Rai :
25,000
(b) On account of investment made in the unaccounted sales :
15,000
(c) On account of cash advance to several agriculturists as per peak amount worked on the basis of the seized document (Rs. 1,33,076 -Rs. 25,000 on account of profit as above) :
1,08,076
(d) On account of cash payments made to various persons as recorded in a seized document :
48,922 Total :
1,96,998 In the case of M/s Miri Ram Prem Chand, return was filed for the asst. yr. 1984-85 showing total income of Rs. 18,490. This firm was also a registered partnership-firm and derived income from the purchase and sale of cloth on retail basis. The accounting year ended on 31st March, 1984. Survey operations under s. 133-A of the Act had taken place on 28th July, 1984 and certain papers were seized. Physical verification of the stock, as available in the shop, was also done. During the course of assessment proceedings, the assessee-firm agreed for the following additions :
Rs.
(i) On account of excess stock found at the time of survey :
90,000
(ii) On account of profit at the rate of 12.5 per cent on undisclosed sales of Rs. 2,41,613 as recorded in a note-book :
30,202
(iii) Investment made in sales :
15,000 Less credit given for the amount of profit of Rs. 30,202 covered in the excess stock :
1,35,202 (-) 30,202 Total additions :
1,05,000 Penalty proceedings were initiated by the AO, after finalizing the assessments, upon the three assessees, as aforesaid, on the ground that they had concealed particulars of income and had agreed to the additions on that account. The assessees filed replies in the penalty proceedings, explaining that they had agreed for certain additions in order to earn peace of mind and to avoid litigation and on an undertaking that no penalty would be imposed. It was also stated in the reply that some income related to the earlier years but the assessee had agreed for being assessed in the asst. yr. 1984-85 in order to avoid formalities and litigation. The AO, however, did not agree and imposed penalty in the cases of all the three assessees.
All the three assessees went in appeal against the levy of penalty before the CIT(A) and put forward the same plea as they had given in their replies before the AO. Their appeals were accepted. The AO went in appeal against the cancellation of penalty before the Tribunal but did not succeed. Applications were filed for reference of the question of law before the Tribunal but that too were rejected.
3. Shri R. P. Sawhney, learned senior counsel for the CIT, has contended that the concealment of income was apparent and, since the penalty has been cancelled, a question of law does arise.
4. The learned counsel for the assessees, has opposed the plea of the Department on the ground that the assessees had agreed for the additions on an assurance and undertaking that no penalty proceedings shall be initiated. Though there was no agreement in writing but certain additions were agreed to be made in this year on that assurance and undertaking only. As per the narrations made in respect of the additions made to the income in the assessment order, it is evident that the entire income by way of additions did not relate to the asst. yr. 1984-85 but only part of the income related to this year. This fact itself made out a clear case that the assessee had agreed for the additions on an assurance and understanding to the effect that no penalty shall be levied. It has been contended that the finding given by the CIT(A) as well as the Tribunal is a finding of fact and, in this light, no question of law arose from the controversy.
5. Shri R. P. Sawhney, learned senior counsel for the Department, has put forward the proposition that, where an assessee himself, during the course of assessment, filed a revised return and owned a disputed amount to be his income, the onus on the Department stood discharged and, in that situation, penalty could be levied. In Mahavir Metal Works vs. CIT (1973) 92 ITR 513 (P&H) the assessee had owned a disputed amount to be his income and, since he failed to show in the penalty proceedings that the admission made by him during the course of assessment proceedings was wrongly or illegally made or was incorrect, the IT Department was held justified in levying the penalty on him under s. 271(1)(c) of the Act.
6. The question, whether cancellation of the penalty would give rise to a question of law or not, has been examined by the Supreme Court in Addl. CIT vs. Chandravilas Hotel (1978) 115 ITR 118 (SC). After considering the facts of the case, it was observed by the Supreme Court that the finding of the Tribunal, that the assessee was not guilty of any fraud or gross or wilful neglect in his return of income as a figure less than 80 per cent of the income assessed was arrived at without considering the entire material on record, did give rise to a question of law. In that case, certain questions were sought for reference and, looking to the facts and circumstances of that case, it was held that it was desirable to call for a statement of the case. The facts and circumstances, on the basis of which penalty had been levied, have not been discussed and, therefore, it cannot be said, on the basis of the aforesaid decision of the Supreme Court, that in every case of levy of penalty a question of law would naturally arise.
7. Where there is an agreement between the assessee and the IT authorities, it would not be appropriate that an order, based on an agreement, should give rise to grievances and could be agitated in appeal. This High Court in Banta Singh Kartar Singh vs. CIT (1980) 125 ITR 239 (P&H) had an occasion to examine a case where the assessee had agreed to the levy of penalty of Rs. 32,188 but he subsequently challenged it on the ground that the penalty levied was not the minimum leviable according to law. Since there was an agreement, it was held that it could not be challenged in appeal.
The learned counsel for the assessee has, on the basis of the ratio of the aforesaid judgment, put forward a proposition that in the case of the present assessees too there was an agreement and, in such a situation, nothing should be done beyond and outside that agreement. The very nature of the agreement and the circumstances around it indicated that no penalty proceedings would be initiated.
8. From the finding given by the Tribunal, it is apparent that the assessee had, in each case, agreed for certain additions in the asst. yr. 1984-85 though only part of the income related to this year. By agreeing for the addition to be made in one assessment year, the assessee subjected himself to higher tax. It gives rise to a natural presumption that the agreement was conveyed to the AO during the course of the assessment proceedings so as to buy peace of mind and to avoid litigation on an understanding and assurance that no further proceedings for the levy of penalty would be initiated. This finding of fact given by the Tribunal does not give rise to any question of law.
9. In the result, all the applications are rejected.