Madras High Court
Henry Isidore vs Commissioner Of Income Tax on 31 January, 1996
Equivalent citations: [1996]222ITR496(MAD)
Judgment K.A. Thanikkachalam, J.
1. In pursuance of the direction of this Court given to the Tribunal in TCP No. 109 of 1980, dt. 14th July, 1980, the Tribunal referred the following questions for the opinion of this Court under s. 256(2) of the IT Act, 1961 :
"1. Whether, on the facts and circumstances of the case, the levy of penalty of Rs. 43,389 under s. 271(1)(c) of the IT Act, 1961, is justified in law ? and
2. Whether, on the facts and in the circumstances of the case, the decision of the Tribunal that the petitioner had concealed his income to the extent of Rs. 43,389 or any part thereof is a reasonable view to be taken on the facts ?"
2. The assessee runs a lodging house known as "Chandra Lodge". His place of business was raided by the IT Department on 22nd Aug., 1972, and a number of documents and books were seized. One of those books marked as "14(b)", contained entries showing receipts of various amounts by the assessee from persons who were allowed to park their tourist buses within the compound of the assessee's lodge during the relevant previous year, the total aggregating to Rs. 36,015. Another book marked as "No. 7" contained entries said to be relating to the expenditure incurred by the assessee. A statement was recorded by the Assistant Director of Inspection from the assessee on the same day. It was stated by the assessee then that certain bus owners, viz., Selvi Sri Ram and N. P., used to park their buses in the compound of his lodge, that he had collected rent from them for so parking their buses, that he used to get Rs. 600 per month gross and that he had recorded such receipts in the account books marked as "14(b)". He further stated that he had not disclosed such income in the income-tax returns filed by him earlier. For the asst. yr. 1972-73, a notice was issued to the assessee by the ITO under s. 139(2) on 21st Feb., 1973, requiring him to file his return of income. The assessee filed the return on 28th Feb., 1973, disclosing income of Rs. 27,000 made up of Rs. 18,000 under the head "Property" and Rs. 9,000 under the head "Business", both being estimated figures. It was stated by the assessee in the covering letter dt. 28th Feb., 1973, sent along with the return that such income had been returned on estimate as the account books had been seized and kept by the Department. Thereupon, the seized account books were made available to the assessee and he was permitted to take extracts therefrom. Subsequently, the assessee filed a return on 13th Feb., 1975, disclosing an income of Rs. 32,954 made up of Rs. 16,164 under the head "Property" and Rs. 16,790 under the head "Business". On 20th Feb., 1975, the assessee appeared before the ITO with his authorised representative, in response to the notice issued under s. 142(1). The ITO required the assessee to furnish details regarding the rent collected in respect of the lodging house during the relevant accounting year, of the lease agreements entered into during the relevant accounting year, of bus parking charges received by the assessee during the relevant previous year, of rent in respect of house properties and regarding certain loans said to have been taken by the assessee. The assessee agreed to furnish the details, as can be seen from the entry made by the ITO on 20th Feb., 1975, in the order sheet wherein the assessee's authorised representative also signed. On 6th March, 1975, the assessee filed a return disclosing income of Rs. 47,324 made up of Rs. 31,662 under the head "Property" and Rs. 15,662 under the head "Business". The ITO examined the assessee on 10th March, 1975, and recorded his statement. The assessee was shown the account book marked as "14(b)" and was informed that it contained entries showing receipt of Rs. 36,015 by way of bus parking charges during the relevant previous year. The assessee stated that he had received 20 per cent thereof as commission and had shown the same in the revised return filed by him on 6th March, 1975. The assessee further stated that there was no evidence available with him to prove that the remaining 80 per cent had been expended by him. On 17th March, 1975, a revised statement was filed by the assessee's authorised representative, showing the income as Rs. 46,819. On 22nd March, 1975, the ITO made an assessment determining the total income as Rs. 1,05,003. The ITO recomputed the total receipts from the lodge as Rs. 78,867. He disallowed Rs. 8,400 out of Rs. 11,667 claimed by the assessee as salary paid for the staff. He also disallowed Rs. 6,000 out of Rs. 7,000 claimed as salary paid to the manager. The ITO also included Rs. 36,015 as income received by the assessee by way of parking charges. The ITO also initiated action for levy of penalty for alleged concealment of income under s. 271(1)(c) of the IT Act, 1961.
On appeal, the AAC held that deduction of 10 per cent of the gross receipt could be allowed for expenditure and determined the same as Rs. 32,414.
Thereupon, the assessee preferred an appeal contending that the inclusion of Rs. 32,414 as bus parking charges under the head "Other sources" was not correct. The Tribunal, by its order dt. 27th Nov., 1977, held that the assessee had received charges for parking buses in his compound. The Tribunal further held that the assessee would have incurred an expenditure of about Rs. 8,000 to Rs. 9,000 by way of payment of brokerage for earning that income. Accordingly, the Tribunal sustained an addition of Rs. 27,414.
During the pendency of the above appeal before the Tribunal, the IAC required the assessee to show cause against the levy of penalty for alleged concealment of income. The assessee submitted that there was no concealment of income by the assessee and hence, penalty could not be levied. The IAC did not accept the explanation offered by the assessee and held that the assessee had concealed income of Rs. 59,406 made up of Rs. 8,067 being the inflation of salary, Rs. 18,925 being the rental omission and Rs. 32,414 being the parking charges. Accordingly, he levied penalty of Rs. 59,406 by his order dt. 26th March, 1977.
Aggrieved, the assessee filed appeal before the Tribunal contending that the levy of penalty was not proper. The Tribunal held that the assessee could not be said to have concealed Rs. 3,267 being the amount disallowed out of salary claimed to have been paid by the assessee to its staff. The Tribunal noticed that the assessee's claim for payment of Rs. 4,800 as salary to the manager, Ramana Bhatt, at the rate of Rs. 300 per month was not correct. The representative of the assessee contended that the same could be established from the books seized by the Department. The seized books were made available to the assessee and after examination, the assessee's authorised representative stated before the Tribunal that no payment was made to Ramana Bhatt during the relevant previous year. Further, he urged that moneys had been advanced to Ramana Bhatt earlier and the same was set off against the salary payable to him, when he worked as manager. The Tribunal noticed that no evidence was produced to show that Ramana Bhatt had worked as manager. But, the said Ramana Bhatt himself had written a letter to the assessee dt. 14th Feb., 1970, that he had not served as manager or in any other capacity during the relevant previous year. Considering these aspects, the Tribunal held that the assessee had concealed the income of Rs. 4,800.
So far as the charges for amenities are concerned, it was contended before the Tribunal that the assessee had disclosed the same in the return filed by him on 6th March, 1975. The Tribunal noticed that the assessee had not disclosed the above income either in the original return filed on 28th Feb., 1973, or in the return filed on 13th Feb., 1975, and that the assessee had filed the return on 6th March, 1975, only because the ITO asked for details regarding the rent from the properties. While so, the Tribunal pointed out that the assessee had not voluntarily disclosed the above income even before any enquiry was made by the ITO. The Tribunal, therefore, found that the assessee had omitted to disclose the same amounting to Rs. 18,375 by way of amenities charges.
In the matter of parking charges, the Tribunal noticed that such receipts had been noted in the book marked as "14(b)" and the assessee had admitted having received such charges when examined on 22nd Aug., 1972, and yet had not disclosed the same in the return filed by him. The Tribunal pointed out that the omission to show the income by way of car parking charges in the first return could be explained by the fact that the books were not made available to the assessee and the omission in the second return may have been due to some inadvertence, for the details of the source of income was already in the knowledge of the Department and such receipt of income had also been admitted by the assessee much before the first return was filed. Therefore, the Tribunal did not accept the claim of the assessee that 80 per cent of the receipt has to be paid as brokerage. Accordingly, the Tribunal came to the conclusion that the assessee concealed the income of Rs. 20,214. Thus, the penalty was reduced to Rs. 43,389.
3. Before, us, learned counsel appearing for the assessee submitted that since the Department seized the account books the assessee could not file the returns with correct particulars. Since the Department asked the assessee to file a return under s. 139(2) of the Act, the assessee was compelled to file a return with whatever particulars were available with the assessee. The assessee had also written a letter along with the return stating that the return was filed on the basis of estimate. It was, therefore, submitted that when the books were not available to the assessee, the assessee had no other alternative than to file a return with the available particulars. Therefore, it cannot be said that there is any concealment of income or the assessee furnished inaccurate particulars in the return filed in accordance with the notice issued under s. 139(2) of the Act. According to learned counsel for the assessee, the penalty under s. 271(1)(c) could be levied only with reference to the concealment found by the ITO in the original return. No penalty can be levied on the basis of the revised return. In order to support this contention, reliance was placed upon the decisions of CIT vs. S. S. K. G. Arthanariswamy Chettiar (1982) 136 ITR 145 (Mad); and ITO vs. R. P. Handa . He has further submitted that when the Tribunal was curious enough to accept that there is no concealment with regard to the source of income on the ground that records were not available to the assessee and there was no concealment in the revised return dt. 13th Feb., 1975, since the particulars were not furnished because of inadvertence, the same reason should be applied for the other two sources also in order to come to the conclusion that there was no concealment. There is no concealment of income of Rs. 4,800 and Rs. 18,375. Therefore, according to learned counsel for the assessee the Tribunal was not correct in holding that penalty is exigible under s. 271(1)(c) with regard to the particulars of income consisting of three items.
4. On the other hand, learned standing counsel for the Department, while supporting the order passed by the Tribunal submitted that for the purpose of levying penalty under s. 271(1)(c) of the Act, the officer concerned should find out the concealment of income with reference to the original return by taking into consideration the statement or return filed by the assessee. Concealment could be established with the original return on the basis of the particulars furnished in the revised return. The Tribunal gave a categorical finding that the assessee concealed its income with regard to the three sources. According to learned standing counsel for the Department, the decision in CIT vs. S. S. K. G. Arthanariswamy Chettiar (supra), is an authority for the proposition that the concealment with reference to which the penalty could be imposed was the concealment of the income in the return originally filed by the assessee which was prior to 1st April, 1968. The law that was applicable prior to 1st April, 1968, alone can be applied. It was, therefore, submitted that the order passed by the Tribunal in confirming the penalties under s. 271(1)(c) of the Act, is in order.
5. The point for consideration is whether the penalty under s. 271(1)(c) of the Act can be levied in respect of the three items, for the alleged concealed income ?
6. The first is Rs. 8,067, disallowed by the ITO. This is in turn made up of two items, namely, Rs. 3,967 disallowed out of Rs. 11,667 claimed by the assessee as salary paid to the staff. In the assessment order it can be seen that the assessee had produced the salary register for the period from 1971 in support of the above claim. The register for the period from January, 1972, to March, 1972, was not produced. The ITO noticed that the perusal of the salary register for January, 1972, disclosed that on an average the total monthly salary payments to the staff worked out to Rs. 700. On that basis, he allowed Rs. 8,400 out of Rs. 11,667 claimed by the assessee, and disallowed the balance. The disallowance was made only because of evidence in support of the claim was not produced. Therefore, the Tribunal came to the conclusion that the assessee had not concealed income of Rs. 3,267 in the return filed by him.
7. The second item is Rs. 4,800 disallowed out of Rs. 6,000 claimed to have been paid as salary to the Manager. The ITO pointed out that the pocket note book marked as "No. 7" which was seized at the time of raid disclosed that the salary was paid to the Manager, Sri Sundararajan, at the rate of Rs. 300 per month up to 31st July, 1971, when he left service. Therefore, he allowed only Rs. 1,200 and the balance of Rs. 4,800 was disallowed. It was contended before the Tribunal that the balance represented the salary paid to Sri P. V. Ramana Bhatt during the relevant previous year. It was stated that this could be established from the books seized by the Department. The books were not made available to the assessee. But, ultimately, the assessee stated that no payment was made to Sri Ramana Bhatt during the relevant previous year. According to the assessee, moneys had been advanced to Ramana Bhatt earlier and the same was set off against the salary payable to him when he worked as Manager. But no evidence was produced to substantiate this version. The said Sri Ramana Bhatt had also written a letter to the assessee on 14th Feb., 1970, stating that he had not at all served as Manager or in any other capacity during the relevant previous year. However, the assessee claimed Rs. 6,000 as salary paid to the Manager. In this view of the matter, the Tribunal held that the assessee had concealed income of Rs. 4,800.
8. Another item of concealment according to the IAC is Rs. 18,925 being the rental omission. This relates to amenities charges. The assessee had admitted Rs. 16,164 as income from property in the return filed by him on 13th Feb., 1975. Admittedly, he has not included therein the amount received by him as charge for amenities. In the return filed by him on 6th March, 1975, he had disclosed Rs. 21,062 under the head "Property" income. In doing so, he had included Rs. 21,660 being the amenities charges. The ITO did not accept this computation. He worked out the property income as Rs. 16,045 and Rs. 21,660 was brought to tax under the head "Other sources". On appeal, the AAC reduced Rs. 21,660 to Rs. 19,494. Hence, the aggregate of the income from the property comes to Rs. 35,529. The Tribunal pointed out that the IAC by mistake took it as Rs. 35,089. Since the assessee had disclosed income of Rs. 16,164, he arrived at a difference as Rs. 18,925 but it should be only Rs. 18,375.
9. According to the assessee, he had disclosed this income in the return filed by him on 6th March, 1975. It is pointed out that the assessee had neither disclosed this in the original return filed on 28th Feb., 1973, nor in the return filed on 13th Feb., 1975. When the ITO asked for details regarding the rent from the properties on 20th Feb., 1975, the assessee filed the return on 6th March, 1975. The ITO had also made enquiries by his letter dt. 27th Feb., 1975. Hence, the Tribunal held that it cannot be stated that the assessee had voluntarily disclosed the above income even before any enquiry was made by the ITO. Before the Tribunal, it was contended by the assessee that only by inadvertence, the above income was omitted to be disclosed in the return filed on 13th Feb., 1975. This explanation was not accepted by the Tribunal. Therefore, the Tribunal upheld the view of the IAC that the assessee has omitted to disclose the income by way of amenities charges which would come to Rs. 18,375 only.
10. The last item of concealment according to the IAC is the parking charges amounting to Rs. 36,015. It was seen in the note book seized from the assessee and marked as "14(b)". When the assessee was examined immediately after the seizure on 22nd Aug., 1972, the assessee stated that several bus owners had paid for parking the buses and that he had received Rs. 600 per month gross and that such receipts were recorded in the abovesaid book. The first return submitted on 28th Feb., 1973, is subsequent to this date. In this return no income from this source was shown but the assessee had stated that the account books had been seized and, therefore, incomes were shown by way of estimates. Subsequent to the assessee's letter accompanying the return dt. 28th Feb., 1973, the seized books were made available to the assessee. In the return filed on 13th Feb., 1975, for the second time also the assessee did not show any income from this source. After meeting with the ITO on 20th Feb., 1975, a revised return was filed on 6th March, 1975, wherein income from this source at Rs. 7,220 was shown on the basis of Rs. 600 per month net. In the original statement, the assessee had stated as Rs. 600 gross per month. The Tribunal pointed out that stating as gross would be attributed to be a slip instead of stating that he was making Rs. 600 per month net. This sum of Rs. 7,200 is shown in the third return also. According to the Tribunal, the assessee having stated that he was getting income from the parking of buses and the books of total receipts having been in the hands of the ITO, it would not have been possible for the assessee to suppress such income. Further, according to the Tribunal, the omission to show income from this source in the first return could be explained by the fact that the books were not made available to the assessee and the omission in the second return may have been due to some inadvertence for details of the source of income were already in the knowledge of the Department and have been admitted by the assessee much before the first return was filed. According to the assessee, 80 per cent of the receipt of Rs. 36,016 was paid as brokerage. This was not substantiated by evidence, either before the ITO or before the AAC or even before the Tribunal. The Tribunal, in its order dt. 26th Nov., 1977, has sustained an addition of Rs. 27,414 and in this regard had given the maximum allowance due to the assessee on the basis of the entire evidence the assessee could tender. Ultimately, the Tribunal came to the conclusion that the assessee had concealed income of Rs. 27,414. To the extent of Rs. 7,200, the Tribunal held that the assessee cannot be said to have concealed any particulars of income merely because the amount did not find place in the first two returns. Regarding balance, i.e., Rs. 20,214, the Tribunal was of the view that there is definitely a concealment because the true income has been arrived at in quantum proceedings after consideration of the entire evidence on which the assessee could rely and the assessee's inflated claim of expenditure was found to be totally unsubstantiated. Thus, under the abovesaid three items Rs. 4,800, Rs. 18,375 and Rs. 20,214 totalling to Rs. 43,389 was considered to be concealed income and the penalty was sustained to the extent of Rs. 49,406.
Thus, with regard to the first two items, namely, Rs. 4,800 and Rs. 18,375, there was evidence on record to come to the conclusion that the assessee concealed the particulars of income or furnished inaccurate particulars in the original return filed. In so far as the third item, namely, Rs. 20,214 is concerned, even according to the Tribunal, there was no concealment of this amount in the original return as well as in the second return. The concealment was stated to be made in the third return.
11. The provisions contained in the IT Act contemplate the concealment in the original return filed under s. 139 alone, and the penalty is to be imposed with reference to that concealment. The subsequent returns were filed only to enable the ITO to determine the real income of the assessee and the amount concealed. However, filing of a revised return will not create a fresh cause of action or a fresh concealment. Even though same concealment existed in the return filed in the reassessment proceedings, no fresh cause of action arose for the levy of penalty when the second return was filed as it was only a continuation of what had happened earlier, and that the repetition of the same mistake does not give rise to a fresh cause of action. Accordingly, the penalty will have to be calculated in accordance with the law as it existed when the original return for wealth-tax (sic) was filed. For a particular year, an assessee can commit the offence only once when he furnished incorrect particulars of his income, and that he does, by filing the original return. Even if he is asked to file a number of returns for that very year and he sticks to his original position, he will not be committing the offence again and again. The offence being concealment of income, persistence in such concealment cannot be taken as a fresh offence committed every time a return is filed that does not disclose the real income. Neither the provisions of the Act nor the decided cases authorise the imposition of penalties with reference to each of the returns for the same assessment year, or more than once for the same offence. But it is possible to recall an earlier order of penalty and pass another order imposing higher penalty, if on the later occasion the true facts ascertained show a higher amount of concealment.
This position is clear by the decision reported in CIT vs. S. S. K. G. Arthanariswamy Chettiar (supra) which was rendered on the basis of the following earlier decisions :
K. E. M. Mohammad Ibrahim Maracair vs. CIT (1964) 52 ITR 890 (Mad); Gurdayal Berlia vs. CIT (1966) 62 ITR 494 (Cal); N. A. Malbary & Bros. vs. CIT ; CWT vs. M. V. Rajamma ; and CIT vs. Ram Singh Harmohan Singh : (FB).
The decision rendered in CIT vs. S. S. K. G. Arthanariswamy Chettiar (supra) was approved by the Supreme Court in the decision reported in CIT vs. Onkar Saran & Sons (.
12. In the present case, in so far as the first two items of concealed incomes are concerned, they were definitely omitted to be mentioned in the original return. According to the assessee, the account books were seized by the Department and, therefore, the original return was filed on the basis of estimate and, therefore, there could not be any concealment. This explanation offered by the assessee cannot be accepted. Because, even if the Department required the assessee to file a return under s. 139(2) notice within a particular period, the assessee could have asked for extension of time for filing the return since the account books were seized and kept in the custody of the Department. That was not done in this case. Otherwise, the assessee could have asked for permission to peruse the records in the custody of the Department and would also have taken extracts from the records for the purpose of filing the returns. That was also not done in this case. Therefore, the assessee cannot say that the return was filed on the basis of estimated income which does not reflect the correct income particulars as mentioned in the account books. Therefore, there is difference between the figures mentioned in the account books and in the original return and that done deliberately with the knowledge that this would lead to further complication. Under such circumstances, it cannot be said that there is no concealment of income in the original return in so far as the first two items of the concealed income are concerned.
13. In so far as the third item of concealed income of Rs. 20,214 is concerned, the Tribunal itself has recorded a finding that the assessee could not give correct particulars in the original return because the records were seized and kept in the custody of the Department. In so far as the first revised return is concerned, the Tribunal pointed out that the particulars were not furnished because of inadvertence. Therefore, when there is no concealment in the original return, penalty cannot be levied under s. 271(1)(c) of the Act as per the legal pronouncement cited supra. In the present case, admittedly, in so far as the third item of the concealed income is concerned, it was based upon the third return filed by the assessee. Hence, the penalty of Rs. 20,214 is not exigible under s. 271(1)(c) of the Act.
14. In view of the abovesaid findings, since the questions framed and suggested by the Tribunal do not reflect the correct issue involved in this case, we would reframe the questions as under :
"1. Whether, on the facts and in the circumstances of the case, the levy of penalty for concealment of income under s. 271(1)(c) of the IT Act, 1961, is justifiable in so far as Rs. 4,800, Rs. 18,375 and Rs. 20,214 are concerned ?"
The abovesaid question would be comprehensive enough to cover the subject-matters raised in both the questions referred to us by the Tribunal.
15. In view of the abovesaid findings, we hold that the Tribunal was correct in coming to the conclusion that the penalties of Rs. 4,800 and Rs. 18,375 are leviable under s. 271(1)(c) of the Act and in so far as the penalty of Rs. 20,214 is concerned, the Tribunal is not correct in coming to the conclusion that this penalty is leviable under s. 271(1)(c) of the Act.
16. Accordingly, we answer the question in so far as the first two items of penalties are concerned, in the affirmative and against the assessee and in so far as the question relating to item 3 is concerned, we answer the question in the negative and in favour of the assessee. There will be no order as to costs.