Patna High Court
Badshah Prasad vs Commissioner Of Income-Tax on 10 December, 1979
Equivalent citations: [1981]127ITR601(PATNA)
Author: Nagendra Prasad Singh
Bench: Nagendra Prasad Singh
JUDGMENT S.P. Sinha, J.
1. On being directed by this court under Section 256(2) of the I.T. Act, 1961, the Patna Bench of the Income-tax Appellate Tribunal has made a statement of the case on the following two questions, as formulated by this court :
" (1) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that there was intention to conceal and/or there was gross negligence on the part of the assessee is based on any material ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the penalty under Section 271(1)(c) of the Income-tax Act, 1961, was leviable ?"
2. The relevant facts lie in a short compass : The matter relates to the levy of penalty under Section 271(1)(c) of the I.T. Act, 1961, for the assessment year 1969-70.
3. The assessee is a contractor. He did not maintain books of account for his contract business. The return of income filed by him was on the basis of payment certificates received from the various authorities, under whom he executed the contracts. For the assessment year in question, he first returned his total income at Rs. 13,480, on the basis of the payment certificates received from the Executive Engineer, Birpur Division. This return was filed on 23rd February, 1970. On the 30th May, 1970, he filed a revised return, this time returning a total income of Rs. 33,710. Another return (second revised) was filed on the 11th January, 1972, returning a total income of Rs. 48,850. The first revised return was filed on the basis of further payment certificates having been received from the Head Works Division, Kosi Project, Nepal, Bharda Division Project, Nepal and Raghopur. The second revised return was filed on the basis of further payment certificates from the Nirmali Division, Nepal. The total figure of payment, as indicated in the second revised return, formed the basis, on which the ITO computed the assessee's total income. The assessment order was passed on the 20th January, 1972, that is to say, nine days after the second and the final revised return was filed by the assessee. The ITO initiated proceedings under Section 271(1)(c) of the Act, because of the divergence between the total income returned originally and those returned later in the revised returns. The proceeding under Section 271(1)(c) having been referred to the IAC for passing necessary orders, he issued a notice under Section 274(2) of the Act, calling upon the assessee to show cause as to why he should not be penalised for concealing his income.
4. The assessee submitted before the IAC that the return of income has been revised suo motu, as soon as the assessee came to know that the profit arising on certain other payments had not been included in the previous return. The assessee submitted that such revision of the return were made voluntarily without any detection of concealment of income being made by the department. The assessee, therefore, submitted that he could not be made liable to penalty for the concealment of income or the particulars thereof.
5. The IAC came to the conclusion that the assessee's explanation was unacceptable. According to him, the assessee received the payments through cheques, and, therefore, he did have knowledge about the total receipts, even though he may not be maintaining books of account. Further, the making of substantial investment in the construction of a house during the previous years, relevant to the assessment years 1967-68 to 1969-70, would necessarily have given him knowledge about his total receipts during the relevant accounting year. The IAC, therefore, imposed a penalty of Rs. 36,000 for concealing the particulars of income and giving inaccurate particulars thereof.
6. Penalties for similar cause had been imposed under Section 271(1)(c) on the assessee for the two preceding assessment years also, namely, for 1967-68 and 1968-69. The assessee appealed to the Tribunal against all those orders of penalty and all the three appeals were taken up for hearing together by the Tribunal. The appeals for the assessment years 1967-68 and 1968-69 were allowed on the ground that the order of penalty was barred by limitation. The appeal for the assessment year 1969-70 was, however, dismissed. The Tribunal observed that the assessee was fully aware of the volume of work done by him and of the payments that were received during the relevant year. The further observation was in the following words :
" ...Even assuming for argument's sake that there might not be deliberate intention to conceal the particulars of his income or fraud in returning correct income on the part of the assessee but the very fact that the assessee had not disclosed in his original return the income from the huge payments he received by execution of jobs goes to suggest that there was gross negligence on his part and he was liable to penalty. The entirety of the circumstances would indicate that this was a fit case where penalty should have been levied......"
7. The Tribunal having confirmed the levy of penalty under Section 271(1)(c), the aforesaid two questions arise for the opinion of this court.
8. The short argument made on behalf of the assessee is that the Tribunal had no material before it to infer that the revision of the returned income was with an intention to conceal the particulars of income. According to learned counsel for the assessee, the Tribunal had not found that the revision of the return of income was an outcome of the detection of concealed income by the ITO. On the contrary, the assessee's conduct was that he voluntarily went on revising his return of income as and when he came to receive the payment certificates, which was the only basis on which he could calculate his profits arising in the relevant assessment year. It has further been submitted that in fact the Tribunal was itself in doubt about there being any intention on the part of the assessee to conceal the income or playing a fraud, the only observation the Tribunal made being that the failure to disclose his total income for the relevant assessment year in the original return went to suggest that there was gross negligence on the assessee's part. Such negligence, it was submitted, could not justify the levy of penalty under Section 271(1)(c) of the Act. It was, therefore, submitted that both the questions should be answered in the negative and in favour of the assessee.
9. Learned counsel appearing for the department, submitted that the onus lay on the assessee to prove that the revision of the return of income was bona fide. Since, in the instant case, the assessee could not satisfy about his bona fides, penalty under Section 271(1)(c) was clearly attracted to the case. Stress was laid particularly on the observations of the Tribunal that the entirety of the circumstances indicated this case to be a fit case for the levy of penalty under Section 271(1)(c) of the Act. It was submitted that the Tribunal had good materials to come to that conclusion when it found that the assessee, in spite of being aware of the volume of work done by him, had not returned the income arising to him from the total volume of work, in his original return. It was, therefore, submitted that the two questions must be answered in the affirmative and in favour of the department.
10. It is an accepted principle of criminal jurisprudence that in order to punish a person for an offence, it must be established that there was mens rea on his part in committing that offence. If there is no mens rea no question of punishment arises.
11. Admittedly, the assessee has been returning his total income on the basis of the payment certificates received by him. He has not been maintaining any books of account for calculating his profits for the year in question and has, therefore, to depend wholly on the payment certificates for doing it.
12. Now, the assessee's case is, which is not denied by the department, that as and when he went on receiving payment certificates, he went on revising his return of income for the assessment year in question and in the final revised return he did indicate the total payments received by him during the year in question, which have been accepted as correct and which has formed the basis for determining his total income. It is also not denied that the submission of the revised returns was voluntary, without any concealment having been detected by the ITO, On these facts, it will be difficult to come to the conclusion that the assessee had a criminal intention, to conceal his income by not disclosing it in its entirety, in his original return. A criminal intention must be visible from some action or conduct on the part of the assessee. The IAC as well as the Tribunal have only found one fact that the assessee did not return the whole of his total income in the original return itself and this is based on the presumption that he was fully aware of the volume of work done by him, particularly when he was spending a good lot of money on the construction of a house. The IAC, however, has said that the construction of the house was spread over three years which included the two previous assessment years. These observations did not indicate mens rea on the part of the assessee, when in his original return he did not return the whole of his total income for the assessment year in question, but subsequently returned it in his second revised return. In fact, the Tribunal itself says that this may be an act of gross negligence on the part of the assessee, but gross negligence in not returning the total income all at once is no ground to think that there was an attempt on the part of the assessee to conceal the particulars of his income or to furnish inaccurate particulars thereof. Negligence howsoever gross, cannot be equated with concealment of income.
13. In terms of Section 139(1) of the I.T. Act, 1961, every person, if his total income exceeded the maximum amount which is not chargeable to income-tax, is required to furnish a return of income. Similarly, he has to file a return of income, if he is called upon to do so by the ITO, under Sub-section (2) of Section 139. Sub-section (5) of Section 139, however, permits the furnishing of a revised return. The said section reads :
" If any person having furnished a return under Sub-section (1) or Sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made. "
14. In the instant case, admittedly, the assessee has filed all the revised returns before the assessment was made. The last revision of the return was made on the 11th January, 1972, before the assessment was completed on the 20th January, 1972.
15. The question as to whether the furnishing of a revised return automatically absolved an assessee from the levy of penalty under Section 271(1)(c) has to be determined on the facts and in the circumstances of each case. If there is material to hold that the filing of a revised return was only a camouflage to overcome an omission deliberately made in the original return, penalty for concealment of income would be attracted. On the other hand, if the revision of the return is an honest and bona fide one, that is to say, of an omission having been made inadvertently or without due knowledge of the actual state of affairs, it would not be a case for penalty under Section 271(1)(c) of the Act. It is, therefore, imperative that the facts must be established to indicate that the revision of the original return was of the former kind, namely, to camouflage an omission deliberately made. The view which I have expressed above finds support from an observation made by their Lordships of the Gauhati High Court in the case of F.C. Agarwal v. CIT [1976] 102 ITR 408, The relevant observation is at pp. 418 and 419. It reads as under :
" If after having furnished the return the assessee discovers that some omission has taken place or some wrong statement has crept in in the return, he may file a revised return wherein he may correct the omission or the wrong statement made in the original return. Sub-section (5) further provides that in order to enable an assessee to file a revised return as contemplated under Sub-section (5) the omission or wrong statement that might have occurred or crept in in the original return, must be discovered by the assessee himself. In other words, if after examining the return and accounts in the proceedings the discovery of the omission or wrong statement is made by the departmental authority and thereafter the revised return purported to be under Sub-section (5) is filed, that will not be considered as a revised return under Sub-section (5). As a proposition of law it may be correct that if a revised return as contemplated under subsection (5) is submitted before the assessment is made after the assessee having discovered some omission or some wrong statement, in the original return and in the revised return he makes correction of the omission or the wrong statement, a penalty proceeding for concealment of the particulars of income or furnishing inaccurate particulars of such income as contemplated under Clause (c) of Sub-section (1) of Section 271 may not be attracted. But to avoid the penalty proceedings as contemplated under Section 271(1)(c) by reason of submission of revised return, the revised return itself must be within the correct ambit and scope of Sub-section (5) of Section 139 of the Act. If it cannot be said that a revised return in fact does come within the correct ambit and scope of Section 139(5), then immunity from Section 271(1)(c) cannot be availed of by the assessee. "
16. In the instant case, the department having accepted the fact that, in the absence of books of account, the assessee had to rely upon the payment certificates received by him for returning his total income, the assessee having revised his return even before detection by the ITO, on the basis of the payment certificates received by him from time to time after the filing of the original return, the department cannot say or at least no material has been brought on the record to show that although the assessee was aware of his total receipts during the year, yet he kept back some of them taking an off-chance of concealing that part of the income. The only material, if at all that can be called a material, is a mere presumption that the assessee must be aware of the total volume of work done by him and of the payments that he was entitled to receive on that account. Presumption of fact cannot be equated to a finding of fact and more so when against the concrete assertion by the assessee the department has not been able to find any fact to contradict such assertion.
17. Having regard to the discussions made above, it must be held that the finding of the Tribunal, that there was intention to conceal and/or there was gross negligence on the part of the assessee, is not based on any material and consequently the Tribunal was not right in law in holding that the penalty under Section 271(1)(c) of the I.T. Act was leviable.
18. In the result, both the questions are answered in the negative and in favour of the assessee. The assessee will be entitled to costs. Hearing fee Rs. 250.
Nagendra Prasad Singh, J.
19. I agree.