Calcutta High Court
Durga Kamal Rice Mills vs Cit on 9 April, 2003
Equivalent citations: [2003]130TAXMAN553(CAL)
Author: D.K. Seth
Bench: D.K. Seth
ORDER D.K. Seth, J.
The quantum proceeding was held against the assessee. The facts revealed that upon a search under section 133 of the Income Tax Act, 1961, a duplicate account books were found where the opening balance shown exceeded the figure of the closing balance of the previous year disclosed in the return. This amount was added in the income of the assessee for the previous year. By reason of the Explanation (1) to section 271(1)(c) such addition would amount concealment by fiction. Therefore, the mischief of section 271(1)(c) of the Income Tax Act, 1961 is attracted in this case. That was how this matter was dealt with by the income-tax authorities up to the Tribunal, against which this reference has been sought for.
2. Mr. J.P. Khaitan, learned counsel for the assessee, has pressed three contentions for our consideration. First, the amount shown in the opening balance of the next previous year can be treated to be an income for the next previous year. Though it could be treated as income of the earlier previous year by reason of the addition, yet the finding with regard to the quantum proceedings will not conclusively determine the case for the purpose of penalty proceedings. The court cannot rely on the finding in the quantum proceedings as a factor for the imposing penalty. It requires to be decided independent thereof. it, therefore, seems that two views are possible, viz., the income could be that of the following previous year or it could also be that of the relevant previous year. When two views are possible then penalty cannot be imposed on account of concealment in respect of the relevant previous year when the account could be disclosed in the following previous year. Secondly, that this amount was claimed to be the amount at the hands of the partners as it was shown in the capital accounts of the partners. At the same time, the partners in their revised returns shown this amount in their account. Such returns have since been accepted by the revenue. Therefore, the income did not belong to the assessee but to the partners. Though on identical grounds yet the decision in the quantum proceeding cannot be treated to have reached finality for the purpose of penalty proceedings. The question has to be determined independent of the said finding and decided accordingly. Again he submits when if, cannot be conclusively determined that whether this amount is an income of the assessee or at the hands of the partners included in their capital account. Therefore, when two views are possible, no penalty could be imposed. Thirdly, this amount admittedly has been added as income of the assessee for the previous year. At the same time, this was shown in the return filed by the partners as their income and such returns have since been accepted. The department itself had treated the same amount once as income of the assessee and again as income at the hands of the partners. Unless the amount is owned by the assessee in view of section 69A, there cannot be any question of concealment. When the department itself had accepted the same in both ways, there cannot be any conclusive proof that this amount was owned by the assessee. Therefore, no penalty can be imposed in such a case.
3. Mr. Khaitan has led us through the order imposing penalty as well as the decisions cited by him, viz. : CIT v. Ashok Timber Industries (1980) 125 ITR 336 (Cal) to support his first contention and National Textiles v. CIT (2001) 249 ITR 125 (Guj) and CIT v. P.K. Narayanan (1999) 238 ITR 905 (Ker) to substantiate the other two contentions. He has referred to section 69A and section 271(1)(c) and Explanation 1 thereunder.
4. Ms. Gouri Saria Gutgutia, learned counsel for the respondent/revenue, on the other hand, has contended that it is a settled proposition of law that the findings in the quantum proceedings will not be a conclusive determination for the purpose of imposing penalty. The authority imposing penalty has to come to its independent finding with regard to the question of concealment. She has led us through the order passed by the learned Tribunal imposing the penalty as well as the other materials in the paper book. She has contended that there is a clear finding of fact by the income Tax Authorities with regard to the concealment. There is no infirmity in the finding. Therefore, this court cannot interfere with the same. Secondly, by reason of the Explanation 1 to section 271(1)(c), there is a fiction created by statute. By reason thereof, addition is deemed to be a concealment within the meaning of section 271(1)(c). The explanation advanced by the assessee could not be proved. As such the same can be treated to be false. By no stretch of imagination the explanation can be treated to be a bona fide one. As such it attracts the mischief of the Explanation 1. The question is relevant for the purpose of the relevant previous year. The court is not supposed to look into the question as to whether this income could be treated to be an income of the following previous year. The acceptance of revised returns submitted by the partners claiming the same to be that of their own income is wholly immaterial. Even if some-one claims the income added to the assessee as their own income by reason of section 69A, the authority is empowered to add the same as income of the assessee. As such the subsequent claim by a third party will not negate the same. Such authority can also be available to the revenue when deciding the question of imposing penalty, But, however, such finding has to be arrived at independent of the finding in the quantum proceedings. According to her, the revenue has arrived at an independent finding. As such the three contentions raised by Mr. Khaitan cannot be sustained.
5. We have occasion to hear this matter at length. It is an admitted proposition in law that the finding in the quantum proceeding is not a factor for determining the question for the purpose of imposing penalty. Such a question arose for our consideration in the case of CIT v. Bimal Kumar Damani (IT Reference No. 39 of 1997, dated 10-2-2003). In the said decision, we have considered a few of the decisions operating in the field and had so held. This proposition has not been disputed by either of the learned counsel appearing for the parties. We cannot look into the findings arrived at by the authorities in the quantum proceedings. This question has to be decided independent of such finding. If we do not fall back on the finding in the quantum proceedings, then it seems on facts, that this income was shown as the opening balance of the following previous year and it was open to the assessee to disclose the said income in the returns for the following previous year. That in law, it could be treated as income of the relevant previous year. But there is nothing to prevent the assessee to treat the income as income of the following previous year. It might have been a concealment for the relevant previous year. But whether it is a concealment for the following previous year cannot be determined without a reference to the assessment for the following previous year. Therefore, it appears to us that two views are possible.
6. At the same time, this income was shown in the capital accounts of the partners. Whether this was the income of the partners or of the assessee is also a question, which can be raised requiring determination. The determination in the quantum proceedings not being final, this question has to be examined. It does not appear that the learned Tribunal had examined this question. But even if this was examined, still then two views could be possible. It can be an income at the hands of the assessee or an income at the hands of the partners. Whether it is an income of the one or the other is immaterial for our present purpose since it was in relation to the relevant previous year in respect of which it was treated to be an income of the assessee. But, at the same time, that finding would not be binding on the penalty proceedings. An independent finding has to be arrived at. But this question cannot be determined effectively as the present situation stands, which is the third contention of Mr. Khaitan.
7. Admittedly, the income was added to the assessee for the relevant previous year. At the same time, the partners have also shown this amount as income in their revised return, which was alleged to have been filed in June 1988, which we had found to be in March 1989 in the quantum proceedings. But then Mr. Khaitan points out from the paper book that in the penalty proceedings, it was recorded as to have been submitted in June 1988 (at page 36 of the Paper Book). Therefore, if we go by this finding of the income-tax authority, still then we cannot overlook that the return so submitted by the partners has since been accepted. Authorities have added the amount in the income of the assessee and then again assessed the same at the hands of the partners for the relevant previous year. Now having treated the same amount at the hands of the assessee, as well as at the hands of the partners, the department cannot conclusively say or stick to one for the purpose of imposing penalty that there was concealment by the assessee. Inasmuch as in order to attract the mischief of concealment in a given case, it has to be treated under which provision the particular case is being governed.
8. Section 69A deals with unexplained money of which the assessee is found to be the owner. The material difference between sections 68 and 69A is that section 68 does not require that the amount is to be owned by the assessee. It only deals with any amount shown in the books of account of the assessee. Whereas section 69A deals with money, etc., owned by the assessee and found in his possession. Therefore, ownership is one of the considerations when the matter comes under section 69A. Admittedly, this amount was not shown in the books of account of the assessee and as such it could not have been treated under section 68. Admittedly, duplicate books of account were chanced upon by the income-tax authority in a search conducted under section 133. As such it would come under section 69A. For the purpose of quantum proceedings, it might attract a particular provision for addition to the income of the assessee. But when it comes to the question of imposition of penalty, then independent of the finding arrived at the quantum proceedings, the authority has to find out conclusively that the assessee owns this amount.
9. In the present case, there is nothing to show that the learned Tribunal has ever come to any conclusion that the assessee owned this amount. Even then in this case once it had added to the income of the assessee and then again the same amount has been accepted as income of the partners in their revised return, the income-tax authority is precluded from contending that the assessee is the owner of the amount or income. In this case, it appears that two views are possible.
10. When two views are possible, no penalty can be imposed is a principle that has been enunciated in the said two decisions in National Textiles' case (supra) and P.K. Narayanan's case (supra). In P.K. Narayanan's case (supra), it was held that unless the amount is owned by the assessee and there is a conclusive finding to that effect it is not hit by the Explanation 1 to section 271(1)(c). Whereas in National Textiles case (supra), it was held that until and unless the Explanation is found to be false or mala fide the mischief of section 271(1)(c) cannot be attracted.
11. In the present case, there was nothing to indicate that the explanation was false or mala fide. The learned Tribunal has not arrived at any such conclusion. Having regard to the facts and circumstances of the case, as was held in National Textiles case (supra), no reasonable and positive inference could be drawn. Because of the two stands taken by income-tax authority in this case by adding the amount in the income of the assessee and a again accenting the same at the hands of the partners, the income-tax authority cannot fall back on one and reject the other. In Ashok Timber Industries case (supra), in a similar circumstance, it was held that it could have been treated to be an income of the following previous year when it is shown as the opening balance of that previous year. Thus, also, two views are possible. When two views are possible and when no clear and definite inference can be drawn, in a penalty proceeding, penalty cannot be imposed.
12. For all these reasons, we are not in a position to persuade ourselves to agree with the contention raised by the learned counsel for the revenue and the reason given by the learned Tribunal.
13. We, therefore, hereby answer the question in the negative in favour of the assessee and having regard to the facts and circumstances of the case, we hereby set aside the impugned order of the learned Tribunal.
There will be no order as to costs.