Calcutta High Court
Commissioner Of Income-Tax vs Bengal Iron Galvanising Works on 23 December, 1986
Equivalent citations: [1987]165ITR249(CAL)
JUDGMENT Dipak Kumar Sen, J.
1. Bengal Iron Galvanising Works, the assessee, is a partnership firm registered under the Income-tax Act, 1961. For the assessment year 1963-64, the relevant accounting year ending on March 31, 1963, the assessee filed its return of income on November 8, 1963. Subsequently, on December 31, 1965, the assessee made a voluntary disclosure in which amounts credited in the accounts of the assessee as loans from different parties were disclosed to be the income of the assessee. Rupees 2,94,000 was stated to be the peak credit in the relevant assessment year. Rupees 19,782 was also shown in the accounts of the assessee as interest paid to the alleged creditors on the said loans. Such interest was also disclosed to be the income of the assessee in the said assessment year.
2. The Income-tax Officer issued a notice to the assessee under Section 143(2) of the Income-tax Act, 1961, on September 29, 1967, and a hearing was fixed on November 16, 1967. In making the assessment, the Income-tax Officer took into account the amount of peak credit in the accounts of the assessee prior to April, 1, 1962, and the balance of the peak credit as disclosed, viz., Rs. 1,73,000 was added back as the income of the assessee. The amount of Rs. 19,782 shown to be theinterest paid on the said loans was also added back to the total income of the assessee. The assessment was made accordingly and the Income-tax Officer initiated penalty proceedings under Section 271(1)(c) of the Income-tax Act, 1961, which were referred to the Inspecting Assistant Commissioner.
3. The assessee did not appear in the penalty proceedings before the Inspecting Assistant Commissioner. On the facts, the Inspecting Assistant Commissioner held that the assessee had concealed the particulars of its income and had furnished inaccurate particulars thereof inasmuch as the assessee did not disclose in its return the income disclosed under the disclosure scheme. He held further that the assessee had also furnished inaccurate particulars of his income in its return by claiming deduction of interest on fictitious loans. It was noted that the assessee did not appear in the proceedings and did not file any objection against the imposition of penalty. The Inspecting Assistant Commissioner held that the provisions of Section 271(1)(c) were attracted to the case and imposed a penalty of Rs. 1,27,810.
4. Being aggrieved, the assessee preferred an appeal from the order of the Inspecting Assistant Commissioner to the Income-tax Appellate Tribunal.
5. It was contended on behalf of the assessee before the Tribunal that the assessee had made a voluntary disclosure on December 31, 1965, subsequent to the filing of its return but before any enquiry or investigation had been initiated by the Revenue. It was submitted further that, in the circumstances, the provisions of Section 271(1)(c) of the Income-tax Act, 1961, were not attracted and the penalty imposed should be cancelled.
6. It was contended on behalf of the Revenue before the Tribunal that in the return filed on November 8, 1963, the assessee had not shown the amounts of the said loans as its income and had also claimed deduction of interest paid thereon wrongly. It was submitted that the assessee did not file any revised return and merely because the assessee had made a disclosure which was ultimately rejected, the assessee was not entitled to contend that Section 271(1)(c) of the Income-tax Act was not applicable.
7. The Tribunal found that after the filing of its return, the assessee had made a full disclosure on December 31, 1965, voluntarily, before the Income-tax Officer took any steps in the assessment of the assessee. The first step taken by the Income-tax Officer was the issue of the notice under Section 143(2) on September 29, 1967, but by that time the assessee had already made a full disclosure.
8. The Tribunal held that disclosure might have been rejected by the Commissioner eventually, but in making the assessment, the Income-tax Offier did not bring to tax any amount in excess of what had been disclosed by the assessee.
9. The Tribunal noted the decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 and relied on the following observation (p. 29):
" Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. "
10. The Tribunal held that in the facts and circumstances, the breach of the provisions of the Income-tax Act by the assessee was only venial and was pardonable. The Tribunal held that the case of the assessee was not one where penalty should be imposed merely because it was lawful to do so and, considering the nature of the breach, held that it would be justified in declining to uphold the penalty. The Tribunal allowed the appeal of the assessee and cancelled the order of penalty.
11. On an application of the Revenue under Section 256(2) of the Income-tax Act, 1961, the Tribunal, as directed, has referred the following question, as a question of law arising out of its order for the opinion of this court:
" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the penalty of Rs. 1,27,810 imposed on the assessee under Section 271(1)(c) ? "
12. Learned advocate for the Revenue contended before us at the hearing that the Tribunal having found that there was a default on the part of the assessee within the strict meaning of the provisions of Section 271(1)(c) of the Income-tax Act in not filing a true and correct return and the assessee not having appeared before the Inspecting Assistant Commissioner and not having made any representation against the imposition of penalty, the Tribunal was in error in cancelling the order of penalty.
13. No one appeared on behalf of the assessee.
14. It appears that the Tribunal held that though technically a default might have been committed by the assessee within the meaning of Section 271(1)(c) of the Income-tax Act, 1961, the default, if any, was a trivial one and that the assessee by making a disclosure, before the assessment was taken up further, had absolved himself of the charge of not filing a true and correct return or furnishing inaccurate particulars of its income in its return. In our view, the Tribunal was entitled to look into the entire facts and circumstances in order to determine whether penalty should be imposed on the assessee or not. It is settled law that before a penalty can be imposed, it has to be established that the assessee proceeded deliberately with an intention to conceal his correct income or to furnish incorrect particulars thereof. In the facts, the assessee by its subsequent conduct may be said to have established that there was no deliberate intention on its part to conceal its income and the incorrect return, which was initially filed, was sought to be rectified by its subsequent disclosure, which was noted and acted upon by the Income-tax Officer. It is not mandatory under Section 271 of the Income-tax Act, 1961, that a penalty must be imposed in every case. If the conditions laid down in the said section are established, then the authority concerned " may direct" that the person committing the default within the meaning of the said section pay the penalty imposed.
15. For the above reasons and on consideration of the facts and circumstances, we are not inclined to interfere with the order which has been passed by the Tribunal, condoning the conduct of the assessec. The question referred is answered in the affirmative and in favour of the assessee. There will be no order as to costs.
Monjula Bose, J.
16. I agree.