Allahabad High Court
Balwant Rai And Company vs Commissioner Of Income Tax on 27 July, 2004
Equivalent citations: (2004)190CTR(ALL)337, [2005]274ITR269(ALL)
Bench: R.K. Agrawal, K.N. Ojha
JUDGMENT
1. The Tribunal, Allahabad, has referred the following question of law under Section 256(1) of the Income-tax Act (hereinafter referred to as the Act) for opinion to this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in invoking at the Tribunal's stage the provisions of the Expln. 1 to Section 271(1)(c) of the IT Act, 1961, as applicable w.e.f. 1st April, 1976 and in thereby upholding the imposition of the penalty of Rs. 13,000 on the assessee under Section 271(1)(c) ?"
2. For the year 1975-76, the assessee filed its return of income on 10th Feb., 1978, declaring a total income of Rs. 1,76,130. The ITO, however, framed the assessment on a total income of Rs. 2,24,130 under Section 143(3) of the Act, on 31st March, 1978. One of the components of the, total income determined by the ITO was Rs. 13,000 which was included in the total income of the assessee in the following manner:
"On scrutiny of cash book, the following deposits were found :
Rs.
5,000 Smt. Rani Gupta 2,000 Smt. Sheela Rani Gupta 3,000 Shri Hans Raj 3,000 Shri Navin Chand Gupta ------ 13,000 ------
Vide order-sheet dt. 23rd March, 1978, assessee was required to prove the nature and source of these deposits. No evidence has been filed. It, thus, appears that assessee has nothing to say to prove these deposits. Accordingly, a sum of Rs. 13,000 is treated as assessee's income from undisclosed sources. Notice under Section 271(1)(c) has also been issued for concealing the particulars of this income."
After considering the assessee's reply to the show-cause notice under Section 274/271(1)(c) of the Act, the ITO was of the view that the assessee had clearly exposed itself to the provisions of Section 271(1)(c) of the Act, in respect of the addition of Rs. 13,000 made in the assessment. He, therefore, imposed penalty of Rs. 13,000 under that section vide his order dt. 26th March, 1980.
3. In appeal before the CIT(A), the assessee once again urged that no penalty could be imposed under Section 271(1)(c) of the Act in respect of the addition of Rs. 13,000 made in the assessment. The CIT(A), however, upheld the action of the ITO.
4. In further appeal before the Tribunal, on behalf of the assessee, it was submitted that the CIT(A) was not justified in applying the provisions of the Explanation to Section 271(1)(c) of the Act, which were deleted in respect of the assessment year under consideration. In this connection, he referred to the relevant provisions of the Explanation to Section 271(1)(c) of the Act, which were made applicable w.e.f. 1st April, 1976 and submitted that the test applied by the CIT(A) in confirming the penalty imposed by the ITO was not at all relevant. It was submitted that in view of the proviso to Expln. 1 to Section 271(1)(c) of the Act, as it stood for the year under consideration, no penalty could have been imposed in respect of the addition of Rs. 13,000 made in the assessment. Relying on the decision of the Hon'ble Gauhati High Court in the case of CIT v. Assam Travels Shipping Services (1977) 110 ITR 359 (Gau), it was also submitted that since the IT authorities had applied wrong provisions of the Act, the penalty imposed under Section 271(1)(c) of the Act deserved to be cancelled. Alternatively, it was submitted that if at all any penalty was imposable under Section 271(1)(c) of the Act in respect of the addition of Rs. 13,000 made in the assessment, the same could have been imposed with reference to the tax sought to be evaded and not with reference to the income sought to be concealed. In this connection, it was pointed out that the assessee had filed its return of income on 10th Feb., 1978 and, therefore, the relevant provisions as they stood on the date of filing of the return were applicable to the instant case and not the provisions which were applicable to the assessment year under consideration. For this proposition, reliance was placed on the decision of the Hon'ble Supreme Court in the case of Brij Mohan v. CIT, (1979) 120 ITR 1 (SC).
5. Before the Tribunal, the learned Representative for the Department, on the other hand, strongly relied on the orders of the IT authorities and justified their action. Relying on the decision of the Hon'ble Orissa High Court in the case of CIT v. Ganpat Rai Gajanand, (1977) 108 ITR 403 (Ori), he submitted that the ITO was fully justified in imposing penalty under Section 271(1)(c) of the Act in a case where he had made certain additions under Section 68 of the Act. Relying on the decision of the Hon'ble Supreme Court in the case of Guduthur Bros. v. ITO (1960) 40 ITR 298 (SC), the learned representative for the Department submitted that just because certain wrong provisions of the Act were applied by the IT authorities, the penalty proceedings could not become bad in law so as to deserve to be cancelled. He, therefore, urged that in the instant case, the appeal is required to be decided on the basis of the provisions of the Act as applicable in the instant case. Thereafter, he referred to the proviso to Expln. 1 of Section 271(1)(c) of the Act and submitted that since the assessee had not given any explanation in respect of the addition of Rs. 13,000 made in the assessment, the assessee was not entitled to get the benefit of the said proviso. In this connection, he also stated that the assessee had not given any material regarding the deposits in question either at the assessment stage or during the penalty proceedings. In this connection, he referred to the assessee's letter dt. 30th March, 1978, on the assessment proceedings and dt. 22nd June, 1978, in the penalty proceedings. As regards the alternative submission relating to the computation of the penalty, it was submitted that since the assessment year under consideration was 1975-76, the law applicable was that in force at the beginning of the assessment year and, therefore, the IT authorities were fully justified in imposing penalty with reference to the income sought to be concealed by the assessee.
6. In view of the decision of the Hon'ble Supreme Court in the case of Guduthur Bros. (supra), the Tribunal did not accept that just because the IT authorities had applied the provisions of law, as they stood prior to the amendment made w.e.f. 1st April, 1976, the entire penalty proceedings could be quashed. It was of the view that since the assessee had not offered any explanation regarding the nature and source of the deposits of Rs. 13,000 added in its income, the assessee was not entitled to the benefit of the 'proviso to Expln. 1 of Section 271(1)(c) of the Act as applicable in the instant case. It, therefore, upheld the action of the IT authorities in imposing penalty.
7. However, the Tribunal accepted the alternative submissions made on behalf of the assessee, namely, that since it had filed the return of income on 10th Feb., 1978, the provisions as they stood on that day could be applicable, in view of the decision of the Hon'ble Supreme Court in the case of Brij Mohan (supra). It, therefore, directed the ITO to recompute the quantum of penalty imposable under Section 271(1)(c) of the Act with reference to the tax sought to be evaded by the assessee.
8. We have heard Sri Vikram Gulati, learned counsel for the applicant and Shri A.N. Mahajan, learned counsel appearing for the Revenue. Shri Gulati submitted that the Tribunal did not apply Expln. 1 to Section 271(1)(c) of the Act as it stood on 1st April, 1976, while upholding the initiation of penalty proceedings. According to him, the Tribunal has committed error in upholding the initiation of proceedings while accepting the plea that the law in respect of penalty as was applicable on the date of filing return, i.e., on 10th of February, 1978 would govern the present case.
9. The submission is misconceived. The order of the Tribunal upholding the initiation of penalty proceedings have already been reproduced hereinbefore. From the reading of the aforesaid order, it appears that the Tribunal has applied Expln. 1(A) to Section 271(1)(c) of the Act. For ready reference Expln. 1 is reproduced below :
Explanation 1 : Where in respect of any facts material to the computation of the total income of any person under this Act --
(A) such person foils to offer an explanation or offers an explanation which is found by the AO or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him.
then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
10. It is noteworthy that the applicant did not offer any explanation regarding source of deposit of Rs. 13,000 in the assessment proceedings, nor any explanation was offered in the penalty proceedings. Thus, in view of Clause (A) of Expln. 1 referred to above, the amount of Rs. 13,000 shall be deemed to represent the income of the applicant in respect of which particulars have been concealed.
In this view of the matter, the Tribunal was justified in invoking the provisions of Explanation as it stood on 10th of February, 1978, i.e., the date of filing the return. This position is now well settled by the apex Court in the case of Brij Mohan v. CIT (supra).
Accordingly, we answer the question of law referred to us in the affirmative, that is, in favour of the Revenue and against the assessee. However, the parties shall bear their own costs.