Income Tax Appellate Tribunal - Allahabad
Omrao Industrial Corpn. (P.) Ltd. vs Income-Tax Officer on 28 June, 1990
Equivalent citations: [1990]35ITD42(ALL)
ORDER
Anand Prakash, Accountant Member
1. Original order of the Tribunal disposing of the aforementioned appeals was passed on 31st December, 1986, whereby the assessee' s appeal was dismissed and the department's appeal was accepted. The said order of the Tribunal was recalled by the order of this Bench in M.A. No. 25/87 dated 4th of April, 1990. The recalled appeals were heard on 4th of June and 5th of June 1990 and are being disposed of afresh as per the present order.
2. The relevant facts giving rise to the controversy may be noted. The assessee is a private limited company deriving income, inter alia, from the production of oil and soap. Its accounting year for the assessment year 1972-73 is the calendar year 1971. It has expellers and solvent plant for extraction of oil which has been extracted during the accounting period under consideration, inter alia, from groundnut seeds and rice bran.
3. The Income-tax Officer, after examining the production records of the assessee, felt that it was not full and complete and did not bring out true production of oil, khali and soap and, therefore, he made the following additions to the assessee's trading results on the basis of comparable cases and assessee's own past history :
Rs.
(1) Groundnut oil a/c 3,79,105 (2) Groundnut khali a/c 22,640 (3) Rice bran oil a/c 6,22,050 (4) Soap a/c 3,33,432
4. The assessee challenged the above additions in appeal before the Appellate Assistant Commissioner, who, after hearing the assessee at length, sustained the following additions in different accounts : -
Rs.
(1) Groundnut oila/c 1,76,085 (2) Groundnut khali a/c 16,250 (3) Soap account 70,224
In respect of rice bran oil a/c, the entire addition made by the Income-tax Officer was deleted.
5. Against the aforesaid order of the Ld. CIT (Appeals) there were cross appeals to the Tribunal both by the assessee and the department. The Tribunal vide its order in ITA No. 577 (All.) of 1976-77 and ITA No. 614 (All.) of 1976-77 dated 21st July, 1980 confirmed the following additions to the assessee's total income :
(1) Groundnut oil account Rs. 1,66,970
(Vide paragraph
17 of the Tribunal's
order).
(2) Khali account Rs. 15,225
(Vide paragraph
18 of the Tribunal's
order)
(3) Soap account Rs. 54,120
(Vide paragraph
36 of the Tribunal's
order)
6. The Income-tax Officer had initiated penalty proceedings for concealment of income, while finalising the assessment in question and as the penalty would be more than Rs. 25,000, the penalty proceedings were referred by him to the IAC for necessary action. In the course of the hearing of the said penalty proceedings before the Inspecting Assistant Commissioner, the assessee-company filed explanation on 5-8-1976, which is placed at pages 16 to 19 of the assessee's Paper Book. In the first three paragraphs, the assessee complained of vagueness in the notice of hearing given by the assessee inasmuch as he had asked the assessee to explain both the charges, namely, (ii) of concealment and (iii) of furnishing inaccurate particulars of income, which, according to the assessee was not correct and, in fact, prevented the assessee from providing reasonable explanation on account of the aforementioned vagueness. According to the assessee on this ground alone, the present penalty proceedings stood vitiated and were bad in law. On merits with regard to the above additions (the additions being referred to were as per the order of the AAC because by that time the Tribunal's order had not been passed), it was stated that the yield of oil, khali and soap as shown by the assessee, was reasonable and, therefore, there was no question of there being any concealment and as such penalty could not be imposed on the assessee. It was further averred on behalf of the assessee that it had maintained full and proper records and the sales were fully vouched and so there could be no scope for doubting production results as disclosed by the assessee. It was further stated that the yield percentage could not be uniform from year to year and the results were bound to differ from time to time depending on a number of variable factors and that this year, the assessee had made purchases from the area of Hardoi and Lakhimpur districts, the groundnut produce whereof was inferior and so end-products were also affected. In support of the above submissions, the assesses filed a certificate from Harcourt Butler Technical Institute, Kanpur and a letter from U.P. Oil Millers Association. With regard to the soap account, it was specifically stated that it had not used filler and, therefore, the presumption made by the Assessing Authority regarding under-production of soap was wrong. In support of it, the assessee again filed a certificate from Harcourt Butler Technical Institute to support its case. According to the assessee, the soap made by it was pure and of a very good quality as would be clear from the average sale price of the soap and so the charge of under-production was not sustainable. Further prayer was made that so long as the appeal was pending before the Tribunal, presumption of concealment may not be raised, because the propriety of the additions itself was under challenge.
7. It appears that there were no further proceedings before the Inspecting Assistant Commissioner after the filing of the aforesaid letter. In the meanwhile, the Tribunal's order in quantum appeal came to be passed as noted earlier on 21st July, 1980. As the law had undergone change in between, the penalty proceedings were transferred from the file of the Inspecting Assistant Commissioner back to the file of the ITO who was now to pass the penalty order subject to the approval of the I AC. Perhaps the entire file of penalty proceedings, as constituted before the IAC did not come to the ITO so that he did not know that the assessee had filed an explanation before the IAC on 5-8-1976. The assessee unfortunately did not make any compliance of the notices of hearing issued by the ITO. He, therefore, remained under the impression that the assessee had not given any reply to the show-cause notice and accordingly he proceeded to pass his penalty order under the aforesaid impression. In this order, he noted the income originally assessed at Rs. 5,72,863 and took note of the fact that the relief allowed by the Tribunal was of Rs. 11,39,341 and so held that the finally determined loss was Rs. 4,66,478. On the basis of the aforesaid figures, he came to the conclusion that the concealed income of the assessee was to the extent of Rs. 5,23,427 because the loss as originally returned by the assessee was of Rs. 9,89,905, whereas the loss ultimately determined was Rs. 4,66,478, the difference between the two being Rs. 5,23,427. The entirety of the aforesaid amount was, according to the ITO, concealed income of the assessee in terms of Explanation to Section 271(1)(c) and as the assessee had failed to offer any explanation for the aforesaid discrepancy, according to him, "it is clear that the failure to return the correct income arose from fraud, gross or wilful neglect on its part," and so holding the assessee guilty of having concealed the particulars of income to the extent of Rs. 5,23,427, the ITO imposed penalty of identical amount on the assessee, being the minimum of the penalty imposable in terms of the provisions of Clause (iii) of Section 271(1) as it stood then.
8. The assessee appealed against the aforesaid order before the Ld. AAC and pleaded before him that the extent of concealment as worked out by the ITO on the basis of which the aforesaid penalty had been imposed, was wrong, for the aforesaid figures took note of the loss of earlier years, which in fact, ought to be ignored for the purpose of determining concealment of income of the year under consideration. In this connection, it was pointed out that in the computation of income which the assessee had along with the return of income, it had been made clear by the assessee that according to it, the net loss incurred by the assessee during the accounting poriod under consideration was Rs. 1,62,255 only and to this loss was added the brough forward loss of Rs. 8,27,650. A note was given on the face of the retun the afforesaid loss or loss as determined by the ITO, whichever might be the correct figure might be taken. The returned loss of Rs. 9,81,906, thus, consisted of loss of year amounting to Rs. 1,62,255 and the brought forward loss of Rs. 8,27,650. As the return on its face itself indicated thatRs. 8,27,650represented the loss of carlier year no facts were either concealed from the ITO in this regard nor were twisted as alleged by the Revenue. The aforesaid sum of Rs. 8,27,650 could not there fore, be Subject matter of penalty. The loss of Rs. 1,62,255 as shown by the assessee had of course, not been accepted by the department and additions as inoicat' above nave been made, as a result of which, instead of there being loss, there would be positive income for the year under consideration, which, after selling off penalty the loss of earlier years, would be reduced to nil income. The quantum of penalty and the approach of the ITO was thus, according to the assessee's submission before the Ld. CIT (Appeals), were incorrect.
9. The Ld. CIT (Appeals) accepted the above submission of the assessee and held that so far as the year under consideration was concerned, the imposability of penalty on the assessee will have to be considered in the context of the additions sustained by the Tribunal, which were on account of groundnut and khali account, soap account and expenses account, the details of the expenses in question, being as follows :
(1) Ovt of general expenses Rs. 29,669 (2) Out of travelling expenses Rs. 3,904
He accepted the finding ot the ITO that Explanation to Section 271(1)(c), as it stood prior to 1-4-1976 applied to the facts of the present case and, therefore, according to the Ld. CIT (Aptxals) also the onus was on the assessee to explain that the aforesaid akkitions were not made on account of fraud or gross or wilful neglect of the assessce
10. The Ld. (Appeals) then proceeded to examine on merits the pros and cons of the aforementioned additions and came to the conclusion that, so far as the additions on acount ofunder-production were concerned, they were mere estimates and the assessee had, therefore, discharged its onus by pointing out that the estimated addition could not be equated with actual concealment. So far as the additions on acount of General expeneses and Traveling expenses were concerned, the finding of the Ld. CIT (Appeals) was that the assessee had not been able to discharge the onus shich lay on him in view of the findings of the Tribunal sustaining the above additions and so, in his opinin, imposition of penalties with regard to the aforesaid items was justified.
11. It is against the aforesaid order of the Ld. (CIT (Appeals) that the present cross appeals have been filed by the Revenue and the assessee. The contention of the Ld. Departmental Representative before us was that the finding of the Ld. AAC as above with regard to the various additions on account of under production was totally erroneous and militated directly against the findings of the Tribunal, in quantum appeal without any basis/evidence. We took us through the order of the Income-tax Appellate Tribunal in quantum appeal in detail in support of his submission and stressed that the Tribunal had given categorical finding in the quantum appeal that the assessee had manipulated with the registers regarding production of groundnut seeds etc. and there were cuttings, over-writings etc. therein and when the assessee was called upon to support his stand that the aforesaid cuttings etc. were clerical errors, committed through mission and the assessee was required to produce the supporting vouchers on the basis of which the original entries might have been made and then corrected on the basis of the correct vouchers, these vouchers of original entry were deliberately withheld by the assessee from the scrutiny of the assessee in authority, first Appellate Authority as also the Tribunal. In the face of the aforesaid findings of the Tribunal with regard to the manipulation in the books of account of the assessee and its conduct, the finding of the Ld. AAC that the addition was a mere estimate was, prima facie perverse, for the estimate in question was not made without any material, but on the basis of the mistakes in the books of the assessee and the evidence available on record and referred to in detail by the Tribunal in its order. It was a mere guess work.
Such addition on estimate is much different from the addition made for example on the short ground that quantitative details had not been maintained by the assessee. It was not a case of non-maintenance of the details, but a case of manipulation with the details maintained. There was a difference in the two situations, which has been lost sight of by the Ld. CIT (Appeals). Therefore his finding with regard to the under production of groundnut oil, groundnut khali and soap deserved to be ignored and penalty in respect of the aforesaid sum should be restored because even in penalty proceedings, the assessee has not given any explanation which might go to show that the aforesaid action of the assessee was not due to the assessee's fraud or gross or wilful neglect. In support of his aforesaid submissions, the learned Departmental Representative relied inter alia on the following authorities :-
l. Addl. CIT v. D.D. Lamba & Co. [1981] 128 ITR 564 (All.),
2. Hanutram Ramprasad v. CIT [1978] 112 ITR 187 (Gauhati),
3. Yelavarti Gopalakrishnaiah v. CIT [1968] 67 ITR 184 (AP),
4. Durga Dutta Chunni Lal v. CIT [1979] 120 ITR 319 (All),
5. CIT v. M. Habibullah [1982] 136 ITR 716/10 Taxman 216 (All),
6. Banaras Textorium v. CIT [1988] 169 ITR 782/36 Taxman 79 (All.),
7. AddI. CIT v. Hari Sah [1980] 124 ITR 769 (All.),
8. CIT v. Sardar Store [1986] 161 ITR 53/25 Taxman 219 (Punj. & Har.),
9. CIT v. Namlabhai Bhanabhai [1987] 163 ITR 189 (Guj.).
12. On behalf of the assessee, the aforesaid submissions of the Ld. Departmental Representative were stoutly opposed and two-fold arguments were put forward before using support of the order of the Ld. CIT(Appeals). The first book of the submissions of the learned counsel for the assessee was that on the facts of the present case penalty could not be imposed on the assessee in law for, admittedly, the total income of the assessee this year was nil and so no tax was payable by the assessee- company, and, unless there was tax payable, it could not be said that the assessee had tried to evade tax and as such in terms of Clause (iii) of sub-section (1) of Section 271, no penalty could be imposed on the assessee. Clause (iii) was read before us and it would be worthwhile to reproduce here, at this stage, to appreciate the argument of the learned counsel for the assessee. It reads as below :-
Section 271(1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person -
(a)...
(b)...
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty -
(i)...
(ii)...
(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.
The aforesaid amendment in Clause (iii) was brought about by the Finance Act, 1968 with effect from 1st April, 1968. Prior to this Clause (iii) read as below :-
in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent, but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.
Laying emphasis on the underlined portion as above, it was submitted by the learned counsel for the assessee that unless there was tax payable by a person, there would be no question of proceeding with imposition of penalty under Clause (iii) for such penalty has to be "in addition to any tax payable by him" and if there is no tax payable by him, there would be no penalty payable by the assessee. The above view of the law has been taken according to the learned counsel for the assessee in the following authorities :-
1. Addl. CIT v. Murugan Timber Depot [1978] 113 ITR 99 (Mad.),
2. M. Radhakrishniah v. CIT [1984] 147 ITR 133 (Mad.),
3. CIT v. Jaora Oil Mill [1981] 129 ITR 423 (MP).
13. In the last decision, the Hon'ble Madhya Pradesh High Court has taken the view that quantum of penalty would be equal to the quantum of income and for this purpose, according to their Lordships, it is the positive income, which has to be taken into account and not the loss. If there was positive total income and, if the quantum of concealment was more than the above, the penalty would be confined to the quantum of positive total income. In the assessee's case total income being nil, the quantum of penalty that could be imposed would be nil. The following passage appearing in Murugan Timber Depot's case (supra) at page 106 was, in particular, stressed by the learned counsel for the assessee :-
Thus, it will be seen that the Gujarat High Court had compartmentalised Section 271(1). One compartment consisting of clauses (a), (b) and (c) and the other compartment consisting of clauses (i), (ii) and (iii) and the former compartment creating a "penal liability in abstract and the latter compartment quantifying the said "penal liability" in terms of money. If anyone of the three clauses (i), (ii) and (iii) of Section 271(1) contemplated the levy of penalty unrelated to the tax payable by an assessee, there may be something to be said in favour of such compartmentalisation. As we have pointed out already, not one of the three clauses (i), (ii) and (iii) of Section 271(1) contemplates a penalty unrelated to the tax payable. In such a context, in our opinion, it is too technical to construe the section as creating a penal liability in abstract by clauses (a), (b) and (c) and quantifying the said penal liability by clauses (i), (ii) and (iii) of Section 271(1). If the reasoning of Gujarat High Court is to be accepted, the moment anyone of the defaults contemplated by clauses (a), (b) and (c) of Section 271(1) has occurred there is an automatic attraction of the liability, but the quantification of the liability may lead to no penalty being levied. As we pointed out already, if in every case the quantification of penalty will lead to a nil amount, it is reasonable to construe that the liability to penalty itself is attracted only when tax is payable by an assessee. This conclusion of ours is in consonance with the object of the section, namely, to prevent evasion of tax. Once it is found that no tax is payable, there is no question of evasion of tax and consequently there could be no attempt to prevent such evasion. In our view, the very structure of the language of Section 271(1) does not admit of such compartmentalisation as clauses (a), (b) and (c) creating in themselves a "penal liability" in abstract and clauses (i), (ii) and (iii) in themselves quantifying the penalty for the liability and yet where no tex is payable the penauy being "nil" in every case, thereby rendering the penalty only a technical and purposeless one. As a matter of fact, the amendment of clause(ii) of Section 271(1) by Section 19of the Finance Act of 1968, with effect from April 1,1968, will support our conclusion in this behalf. As far as the present case is concerned, as we pointed out already even Clause (iii) contemplated the penalty as a measure of the ax only. But when that clause was amended by the Finance Act of 1968, the penalty became not a measure of the tax, but it was made as a measure of the income in respect of which the default has been committed because Clause (iii) of Section 271(1), as substituted by Section 19 of Finance Act of 1968 stated In the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.
Simply as a matter of construction of Section 271 (1) we come to the conclusion that the liability to penalty is attracted only in cases where some tax is payable by the assessee and when no tax is payable by the assessee, the liability to penalty is not at all attracted.
Reference was also made to the observations of their Lordships of the Hon'ble Punjab and Haryana High Court in the case of CIT v. Prithipal Singh & Co. [1990] 183 ITR 69, wherein their Lordships expressed the opinion that "Penalty imposed is paid in addition to the tax payable." When there is no tax payable, the question of any penalty does not arise. In fact, evasion of tax is the sine qua non for imposition of penalty. Clause (iii) deals with cases referred to in Clause (c) under sub-section (1)of Section 271 of the Act and it clearly provides therein that the penalty or further sum payable by a person would be in addition to any tax payable by him. Explanations 3 and 4 annexed to the said provision of law also presuppose taxable income with regard to the assessment year in question. If there is no taxable income or tax assessed for payment during a particular year, the question of evasion and consequently penalty do not arise.
14. The learned counsel drew our attention to Explanation 4 of sub-section (1) of Section 271 which has been brought on the Statute Book with effect from 1-4-1976 wherein a special provision has been made for imposing penalty on the amount of concealed income even in a case where the total income is less than the concealed income. Clause (a) of Explanation 4 reads, inter alia, as below :-
Explanation 4. - For the purposes of Clause (iii) of this sub-section, the expression 'the amount of tax sought to be evaded', -
(a) in any case where the amount of income In respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed means the tax that would have been chargeable on the income in respect of which particulars have been concealed of inaccurate particulars have been furnished had such income been the total income;
The aforesaid Explanation 4 has been put in to make the amended Clause (iii) workable and, therefore, amended Clause (iii) may also be noted at this stage as below :-
Section 271(1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act is satisfied that any person -
(a)...
(b)...
(c) has concealed the particulars of his income or furnished inaccurate particulars of his income or furnished inaccurate particulars of such income.
(i)...
(ii)...
(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.
According to the learned counsel for the assessee the Legislature by introducing Explanation 4 filled up the lacuna, which existed earlier and on account of which there would be no penalty in case there was no tax payable, while amending Clause (iii) by the Finance Act. 1968, the Legislature did not introduce any provision like Explanation 4. It has, therefore, to be understood that the aforesaid gap was left unfilled by the Legislature in 1968 and that is why the Courts have held that there would be no penalty payable if there was no tax payable for the penalty was always payable only in addition to tax payable and if so no tax was payable, there would be no penalty. This is what has been emphasised by their Lordships of the Hon'ble Punjab and Haryana High Court and, therefore, there could be no imposition of penalty in the present case.
15. It was also urged by the assessee's learned counsel that Explanation to Section 271(1) (c) came into operation only for the purpose of determining the culpability of the assessee to penalty. It did not apply to the quantification of penalty by Clause (iii). Therefore, by invoking the Explanation the quantum of concealed income would not be automatically determined. The quantum of concealed income will have to be determined separately and afresh while quantifying the imposition of penalty under Section 271(1)(iii). For this purpose, the 'learned counsel lor the assessee relied upon the following authorities :-
(i) CIT v. Mohinder Singh [1983] 139 ITR 160 (All),
(ii) M. Radhakrishniah's case (supra) In the first case, their Lordships expressed the opinion that:
The findings given in the quantum appeal, as regards the income of an assessee, is a relevant evidence for purposes of determining the amount of concealment in the matter of penalty, but that finding is not binding in the penalty proceedings. The Explanation to Section 271(1)(c) of the IT Act, 1961 docs not have the effect of fixing the quantum of concealment of purposes of imposition of penalty. The function of the fiction created by the Explanation to Section 271(1)(c) is to convert a case where the retunred income is less than eighty per cent, of the assessed income into a case which would be covered by Section 271(1)(c),un1es the assessee proves that he was not guilty of any fraud or any gross or wilful neglect in filing the return of his income. The Explanation exhausts itself once this purpose is achieved and does not create any further fiction to the effect that the assessed income has to be taken as the correct for purposes of imposition of penalty under Section 271(1) (c)(iii). For purposes of fixing the quantum of penalty under Section 271(1) (c)(iii),the amount. of income in respect of which particulars have been concealed or inaccurate particulars have been. Furnished, has to be found by the authority concenied.
Similar interpretation on the scope of the Explanation to Section 271(1)(c) has been given by the Hon'ble Madras High in the aforementioned case of M. Radhakrishniah (supra). Relying on the aforeaid two authorities, the learned counsel for the assessee submitted that the ordor of the ITO could not be supported for the simple reason that he had proceeded on the footing as if the Explanation to Section 271(1 )(c) extended further fiction offixing the amount of concealed income, also which clearly it did not. Therefore, according to the learned counsel, there was no question of restoring the order of the ITO as prayed by the Ld. Departmental Representative.
16. He also questioned the imposition of penalty on merits and supported, in this connection, the finding of the Ld. CIT(Appeals). According to him, the present case was no better than the case of rejection of books of account and of estimating the assessee's income. This did not automatically give rise to a case of concealment for the order of the Tribunal nowhere mentions that there were specific instances of concealment of production and sale thereof outside the books of account. The Tribunal merely rejects the assessee's books and estimates a certain yield. The quantum of yield, which is proposed as a result thereof by the ITO, was a fantastically high figure, which was substantially reduced by the Ld. CIT (Appeals) in appeal and the estimate of the Ld. CIT(Appeals) was further lowered by the Tribunal and as such it was a case where different estimates of the assessee's income were made by different authorities and for holding different opinions in this regard, imposition of penalty would not be justified. As regards the soap account, the assessee's learned counsel pointed out that the defects of the type pointed out in the case of groundnut account by the Tribunal were not found in the soap account. There were no cuttings or overwritings and there is no charge of withholding the subsidiary books. The addition to the soap account was purely as a result of difference of opinion about the estimated production and in such a case penalty ought not be imposed. According to the learned counsel for the assessee, it was wrong on the part of the Ld. Departmental Representative to allege manipulation in the books of account by the assessee. No instance of omission of sales or of inflation of purchases has been noted by the Tribunal. It was further stressed by the assessee's learned counsel that trading results of the assessee this year were in conformity with the results shown by the assessee in earlier years and, therefore, it could not be said that the assessee had under-stated its yield this year. Erasures etc., were no doubt there, but then erasures did not constitute concealment.
17. A great deal of stress was laid on the certificates of an expert from Harcourt Butler Institute of Technology, who had submitted that the crop growing in the districts of Hardoi and Lakhimpur Kheri yielded poorer groundnut seeds and groundnut oil. The benefit of this report should have been given to the assessee. It was also pointed out by the assessee's learned counsel that heavy addition of more than Rs. 6 lacs had been made by the ITO in the Rice Bran account, where also there had been cuttings and erasures etc. The entire addition was deleted by the Ld. AAC and the Tribunal confirmed the Appellate Assistant Commissioner's judgment in this regard. This went to show, according to him, that the mere fact of erasures does not suggest an act of concealment. According to the assessee's learned counsel the assessee's employees might have been inefficient and the assessee may not have proper control over them on account of which there were cuttings and erasures, but that is not the same thing as committing a fraud or gross or wilful neglect. In support of the above proposition, the learned counsel relied upon the following authorities :-
1. CIT v. Harnam Singh & Co. [1977] 106 ITR 532 (All.),
2. Addl. CIT v. Horilal Kunj Behari Lal [1977] 106 ITR 720 (All.),
3. CIT v. Babu Ram Ajit Prasad [1977] 106 ITR 818 (All.),
4. CIT v. Kedar Nalh Ram Nath [1977] 106 ITR 172 (All.),
5. CIT v. K.L. Mangal Sain [1977] 107 ITR 598 (All.),
6. CIT v. Nawab & Bros. [1977] 107 ITR 681 (All.),
7. Addl. CIT v. Chatur Singh Taragi [1978] 111 ITR 849 (All.),
8. Addl. CIT v. Smt. V. Kanakammal [1979] 118 ITR 94 (Mad.),
9. CIT v. Gopal Vastralaya [1980] 122 ITR 527 (Pat.),
10. Addl. CIT v. Jankidas Mohanlal [1984] 150 ITR 588/18 Taxman 409 (Pat.),
11. CIT v. Chotanagpur Glass Works [1984] 145 ITR 225/17 Taxman 356 (Pat.),
12. CIT v. Saraf Trading Corporation [1987] 167 ITR 909 (Ken),
13. Addl. CIT v. K.S.M. Wazir Mohd. & Sons [1977] 110 ITR 798 (All.),
14. Narendra Kumar Rajendra Kumar Jain v. CIT [1988] 174 ITR 479 (MP).
In the case of soap account, the learned counsel submitted that the assessee's production figures were rejected on account of technical reasons and not on the ground that, in fact, production was less. As already pointed out above, there were no cuttings, erasures etc., in the books of account pertaining to the production of soap and, therefore, at least with regard to the soap, it had to be said that there was no concealment and that the assessee had been able to prove that there was no fraud or gross or wilful neglect.
18. In rejoinder, the learned Departmental Representative questioned the premises of law canvassed by the learned counsel for the assessee. He first pointed out that so far as the Tribunal was concerned, it had no power to review its own order and that in the present appeal. The Tribunal could only correct the mistakes, which had crept in the earlier order of the Tribunal and which were highlighted by it in the recall order and, therefore, it was not open to the assessee's learned counsel to agitate in these proceedings before the Tribunal that penalty was not exigible at all. That was never its case earlier and it was not because of this reason that the original order passed by the Tribunal has been recalled. Therefore in his opinion, the above argument of the assessee should not be let in.
19. In any case, the argument was not valid. According to the Ld. Departmental Representative, the above argument might be available till the admendment to Clause (iii) of sub-section (1) of Section 271 was made by Finance Act, 1968, because, till then, penalty was tax based and if there was no tax payable, there can, prima facie, be no computation of penalty, because the penalty was to be computed with reference to the tax payable by the assessee. That argument was no more available after the amendment of Clause (iii) by Finance Act, 1968. Now penalty was income based and, therefore, what had to be found out was whether there was any income concealed and if the answer was that income had been concealed, penalty equivalent to the income concealed would be the minimum that would be imposable on the assessee. It was of no consequence, in this connection, as to what was the ultimate result of the computation of total income of such concealment. The ultimate total income might be a nil figure or a negative figure, but the act of concealment did not disappear because of this. Even the effect of this concealment did not disappear because the evasion of tax was there. It may be manifest in the year of account or in subsequent years. After all concealment of income and reducing thereby the total income to nil or increasing the loss was not an idle exercise indulged in by the assessee for the sheer pleasure of manipulation with the figures. It did have a tangible effect on the taxability of the assessee. Therefore, it would be entirely wrong to say that there could be no effect on tax liability of the assessee if despite the concealment of income, the total income was ultimately determined to be a nil figure or a negative figure. It may be so, but the advantage of carryforward of loss to the next year is reduced correspondingly and thereby the assessee's liability to tax increases. So, concealment of income in such cases has the same impact and has the same quality as it would have in case a positive income resulted on account of above due to concealment. It is no doubt true that the phraseology used in clasue (iii) is that "in addition to tax payable", the penalty would further be payable, it does not, however, mean that if tax payable is nil, there would be no penalty imposable. A distinction is being made between the tax and the additional sum payable by way of penalty. It is not being stated in the section that if there is no tax payable, the additional sum payable by way of penalty would be nil. Prior to 1-4-1968 that was the inherent result of the wordings of Section 271(1)077) that if the tax payable was nil, the sum payable would also be nil because the sum payable was a certain percentage of the tax payable. After 1-4-1968, the penalty imposable is not dependent on the amount of tax payable. It is de hors it. It is directly dependent on the quantum of income concealed. Apparently, therefore, the same construction and interpretation which was valid before the amendment in law would not be available after the amendment in law. The judgment cited by the learned counsel for the assessee in Murugan Timber Depot's case (supra), did not cover the position of law as amended with effect from 1-4-1968. It talked of the position prior to 1-4-1968. The Hon'ble Punjab and Haryana High Court were dealing in the case of Prithipal Singh & Co. (supra) with the assessment of 1970-71, return of which had been filed on 30th of September, 1970 and assessment order in which had been passed on 30th of November, 1973. The law that applied to the aforementioned assessment was not the law as it stood after its amendment with effect from 1 -4-1976, but the law, as it stood amended with effect from 1-4-1968. Unfortunately, however, their Lordships were given a wrong book wherein they noted Section 271(1)(iii) as amended by the Finance Act, 1976 with effect from 1-4-1976 and the Explanations 3 and 4 annexed thereto. By the aforesaid amendment, the penalty had again become tax based and it is because of this that the above opinion has been expressed by their Lordships. They never considered the provisions of Section 271(1)(iii) as were in vogue with effect from 1-4-1968 to 31-3-1976 and, therefore, the aforesaid judgment could not be the authority in support of the assessee's case.
20. The learned Departmental Representative drew our attention to the judgment of the Hon'ble Kerala High Court in the case of CIT v. India Sea Foods [1976] 105 ITR 708, wherein their Lordships have held that for the purpose of imposing penalty under Section 271(1)(iii), one had to look at the concealed income and not at the total income. Total income may or may not be a positive figure, but if there was concealed income there would be imposition of penalty. The above viewpoint has been reiterated by their Lordships of the Hon'ble Kerala High Court in CIT v. Rowther Bros. [1979] 119 ITR 353, wherein their Lordships have clearly pointed out while interpreting the amended provisions of Section 271(1)(iii) with effect from 1-4-1968 that total income of assessee was irrelevant for the purpose of determining quantum of penalty. Total income of assessee may be below the taxable limit, but if the aforesaid total income was arrived at after adding concealed income of the assessee, penalty would be imposable with reference to the concealed income. The following Head-note was read and stressed by the Ld. Departmental Representative :-
All that is required for the imposition of penalty under Clause (c) of Section 271 (1) is that the officer concerned must be satisfied that any person has concealed the particulars of his income or has furnished inaccurate particulars of such income and there is no need to find any failure to furnish the return or failure to comply with a notice, etc., which are the necessary ingredients under Clause (a) and (b). Again in the matter of computation of penalty under Clause (a) and (b) under Sub-clauses (i) and (ii), after Clause(c), the penalty imposed is geared to the tax payable or avoided, whereas in the case referred to under Clause(c) it is not necessarily geared to the tax payable, but is in addition to any tax payable (if no tax is payable this will not enter into the reckoning). It should not be more than twice the amount of the income concerned or the inaccurate particulars furnished. For purposes of the IT Act even a nil assessment has to be regarded as an assessment. Hence, the fact that even if the concealed income were taken into account it would not bring the assessee within the assessable fold, is irrelevant in determining whether penalty should be imposed under Section 271(1)(c).
Where there was a finding that the assessee-firm had concealed a certain income but the penalty imposed was cancelled by the Tribunal on the ground that, even after the addition of the concealed income, the total income was below the assessable limit.
Held, that the Tribunal was wrong in relying on this circumstance and holding that the penalty was not imposable in law.
21. It was further emphasised by the learned Departmental Representative that if the interpretation of law as canvassed by the learned counsel for the assessee was upheld, it would lead to anamolous and inequitable situations. An element of arbitrariness would be introduced and harmonious construction of the various provisions. of law would be ignored. An interpretation which led to such a result, should be avoided. For this, herelied on the judgment of the Hon'ble Supreme Court in the case of CIT v. J.H. Gotla [1985] 156 ITR 323/23 Taxman 14J. Plain language of clause(m) of sub-section (1) of Section 271 as it stood with effect from 1-4-1968 suggested that in addition to tax payable, penalty equal to the amount of concealment would also be imposed taking it to be the minimum figure. It did not say that if there was no tax, penalty would not be imposed. The entire purpose of change in law on 1-4-1968 would be defeated if the law was interpreted in the aforesaid manner. In 1976, the law was again amended and the penalty was again linked to tax as measure, but the Legislature did not want to repeat the mistake or the lacuna that existed in the Act prior to 1-4-1968 on account of which if there was no tax payable as a result of final assessment, there would also be no penalty, for penalty was linked with tax as its measure. To avoid the recurrence of the earlier flaw in the law, Explanation 4 was brought in and it is not that Explanation 4 was brought in because even during the period 1-4-1967 to 31-3-1968, the flaw, as noted by their Lordships of the Hon'ble Supreme Court in the case of Mansukhlal & Bros. v. CIT [1969] 73 ITR 546 subsisted. The point made out by the learned counsel for the assessee as to the scope of the Explanation to Section 271(1)(c) was not disputed by the Ld. Departmental Representative. He, however, submitted that the case of concealment and of fraud and gross negligence of the assessee was writ large on the face of the facts of the present case, as pointed out by the Tribunal and in this regard no further emphasis need be laid than what had already been stated by him earlier. He supported the approach of the ITO with regard to the computation of the concealment of income. According to him, there was no provision in law for the assessee to have added the loss of earlier years to the loss of the current year to return the huge loss as per return of income. By showing that loss, the assessee was misleading the ITO and the ITO was, therefore, justified in taking note of the said figure.
22. Turning to the assessee's appeal, the point made out by the learned counsel for the assessee was that the Ld. CIT(Appeals) has completedly ignored the fact that so far as the general expenses were concerned, the assessee had himself added back Rs. 1,000 as Basa expenses. The ITO estimated the aforesaid expenses to be about Rs. 20,000. In penalty appeal, the CIT(Appeals) has estimated the Basa expenses to be Rs. 5,000. There could not, therefore, be a charge of concealment on the assessee on account of the difference in the estimates as above. Under the head "General expenses" also the assessee had made an addition of Rs. 5,000 on estimate. Addition of Rs. 5,000 has been made by the Ld. CIT(Appeals) for the purpose of imposition of penalty. This is again a difference in estimates only and so no penalty should have been imposed. As regards car expenses, the expenditure was, in fact, incurred and there was no concealment. About Stores, the"assessee did not press the point.
23. On behalf of the Revenue, the order of the Ld. CIT(Appeals) was supported.
24. We have given carefully consideration to the facts of the case and to the rival submissions. The question of law raised by the assessee's learned counsel regarding the leviability of the penalty in a case where there is no tax demand as a result of assessment, on account of the total income being nil, goes to the root of the matter and, therefore, it would be reasonable to deal with this first.
25. Before we deal with this question it would be better to dispose of the preliminary objection raised by the Ld. Departmental Representative with regard to the scope of the present appeal. According to him, the present proceedings are being continued on account of the order passed on the Miscellaneous petition moved by the assessee wherein it was indicated that there were various mistakes apparent from the original order of the Tribunal, which deserved to be rectified. The Tribunal could, therefore, in the present proceedings only confine itself to the rectification of the said mistakes and it could not proceed further and entertain fresh grounds of appeal or arguments including the one raised by the learned counsel for the assessee as above.
26. On behalf of the assessee, however, it was pointed out that the Tribunal had, by its order, in the Miscellaneous petition referred to above, recalled its earlier order as it was not clear to the Tribunal as to in what manner the mind of the Tribunal when they decided the appeal originally was effected or influenced by the mistakes of omission or commission, which were brought to the attention of the Tribunal and which were apparent from record. When the original order is recalled, nothing of the original order remains and as such the entire appeal becomes open and in fresh proceedings for the disposal of the appeal, neither of the two sides can be confined only to the arguments or pleas which were taken in the original appeal. It is open to both the sides to raise such pleas in support of the grounds of appeal originally taken as they deemed appropriate. An attempt to place fetters on the discretion of the Tribunal, while hearing the present appeal, would neither be proper. nor in accordance with law. It was also not justified by the plain language of the order in the Miscellaneous petition passed by the Tribunal.
27. The operative part of the order in Miscellaneous Application No. 25(All.)/1987 dated 4th of April, 1990 reads, inter alia, as below :-
22.3. The first finding of the Tribunal, (on the basis of which alone they said, that the appeal could be decided against the assessee, namely, that in penalty proceedings no explanation had been given by the assessee), it appears to us, was a vital and wholly independent reason, which had queered the pitch against the assessee. The fact that ultimately the Tribunal considered on merits all those points, which had been made out by the assessee in its explanation dated 5-8-1977, would not, in our opinion, change the situation, for, once the Tribunal stated with the impression that the assessee's appeal deserved to be decided against the assessee for that reason alone, the entire approach thereafter even on merits might have been affected by this preliminary finding. May be not; but the possibility of it cannot be excluded. Then, there are observations regarding specific transactions and fillers etc., also, which are contrary to the findings recorded by the Tribunal in quantum appeals. This being the setting of the facts, we feel that the best course in the circumstances to rectify the above mistakes would be to recall the original order of the Tribunal and to re-hear the appeals in question. We accordingly recall the original order.
By reading the aforesaid order of the Tribunal, it would be clear that what the Tribunal had done was to recall the original order of the Tribunal and had directed that the appeals be re-heard. This being so, it is not possible for us to place any fetters on the Tribunal or on the two parties before it with regard to the raising of the pleas for determination of the question. If the three mistakes, which were noted by the Tribunal were such as could be rectified without recalling the order in question, the Tribunal would have done so. In fact, in so many words, the Tribunal discussed the above question as would be clear from the observations made in paragraphs 22.1 and 22.2 of its order. They rejected the Revenue's contention to remove the mistakes and leave the rest of the penalty order, as such. This being so, we are unable to accept the plea of the Ld. Departmental Representative on this account and as such, the preliminary objection raised by him regarding the scope of the present appeal, is decided against the Revenue's stand. In the present appeal, it is open to both the sides to raise all such pleas as they deem appropriate to fortify their respective stands and it would be obligatory on the Tribunal to give its decision on all the issues raised by either sides before it.
27A. In this view of the matter, let us now look at the merit of the legal point made out by the learned counsel for the assessee regarding the leviability of the penalty in the hands of the assessee whose total income for the assessment year under consderation is nil and, therefore, by whom no tax is payable. Before we examine the provisions of clause(iii) of sub-section (1) of Section 271, we may note the colateral plea raised by the assessee's learned counsel regarding the scope of the Explanation to Section 271(1)(c) and whether that Explanation had any impact or bearing on the interpretation of Section 271(1)(iii). On the authority of the decision of their Lordships of the Hon'ble Allahabad High Court in the case of Mohinder Singh (supra) it was pointed out by the learned counsel that the function of the fiction created by the Explanation to Section 271(1)(c) was to convert a case where the returned income was less than 80% of the assessed income into a case which would be covered by Section 271(1)(c), but there the Explanation exhausts itself and once this purpose was achieved, it did not create any further fiction to the effect that the assessed income has to be taken as the correct income for purposes of imposition of penalty under Section 271(1)(c)(iii). For the purpose of determining the correct amount of penalty, it would have to be independently determined as to what was the concealed income. The ratio of the decision of the Hon'ble Madras High Court in the case of M. Radhakrishniah (supra) is also to the same effect and Explanation to Section 271 (1)(c) has been held by their Lordships also as not applicable to Section 271 (1 )(iii). The above position was not disputed by the learned Departmental Representative as, in fact, he could not have done in view of the aforesaid judgment of the Hon'ble Allahabad High Court in the case of Mohinder Singh (supra). This being so, we would proceed to examine the provisions of Section 271(1)(iii) de hors the Explanation to Section 271(1)(c). Even, if there may be a presumption of concealment of income against the assessee, the quantum of penalty would not be automatically determined by such presumption even if the presumption may not be rebutted. For that purpose, it would still be necessary to come to the conclusion that there was concealment of income and to confine penalty to that extent only.
28. We have extracted above sub-clasue (iii) of sub-section (1) of Section 271 of the Income-tax Act, 1961 as it stood at different times till date. There are three distinct phases through which the said Sub-clause (iii) has passed. The original Sub- Clause (iii), as contained in the Income-tax Act was worded more or less in the same way as the provision of Section 28 of the Indian Income-tax Act, 1922. A comparative study of the relevant parts of the analogous provisions in the two Acts would be clear from the following :-
Section 28(1) of the Indian Section 271(1) of the Income-tax Act, 1922 Income-tax Act, Section 28(1) If the Income-tax 1961 Section 271(1) Officer, the Appellate Assistant If the Income-tax Commissioner or the Appellate Officer, or Tribunal, in the course of any the Appellate proceedings under this Act, is Act, Assistant Commissioner in satisfied that any person - the course of any (a)... proceedings under this (b)... is satisfied that any perso (c) has concealed the particulars (a)... of his income or deliberately (b)... inaccurate particucurate particulars (c) has concealed the of such income, particulars of his he, or it may direct that income or furnished such person shall pay by inacincome or furnished way of penalty...in the particular of such income, cases referred to in clauses (i)... (b) and (c), in addition to any (ii)... tax payable by him, a sum not (iii) in the cases referred exceeding one and a half times to in Clause (c), in the amount of the income-tax addition to any tax and super-tax, if any, payable by him. A sum which would have been avoided which shall not be less if the income as returned by than twenty per cent such person had been accepted but which shall not as the correct income. exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.
From the portion italicised as above, it would be clear that under the old Act as well as under the new Act as originally enacted, which continued to be in vogue up to 31- 3-1968, the imposition of penalty under Section 271(1)(c) was tax based and the measure of the penalty was the tax, if any, which would have been avoided. Therefore, if the income returned was a 16ss figure and the income assessed was a loss figure or a nil figure, in either situation, no tax would be avoided because tax would be nil both on the returned income as well as on the assessed income and therefore, naturally no penalty would be imposable on the assessee, where no tax was payable on the total income. It was this aspect which was brought out by their Lordships of the Hon'ble Supreme Court in the case of Mansukhlal & Bros. (supra), when they pointed out, inter alia, as below :-
Under Section 281(1)(c), where it was discovered that income had been concealed, the Legislature wanted the income-tax authorities to determine what would have been the amount of tax that would have escaped assessment had the income shown in the return been accepted as correct and one and a half times the said amount would be the maximum limit within which penalty could be imposed.
In the case of MuruganTimber Depot (supra), the Hon'ble Madras High Court has also brought out this aspect clearly. At page 106, their Lordships pointed out, inter alia, that "...not one of the three clauses (i), (ii) and (iii) of Section 271(1) contemplates a penalty unrelated to the tax payable".
29. The above position, in law, was sought to be amended by the Finance Act, 1968 when the Legislature delinked the quantification of penalty from the tax, if any, which would have been avoided if the income as returned by such person was accepted as the correct income and instead penalty was linked with the quantum of income concealed. Under the amended clause which remained in operation from 1-4-1968 to 1-3-1976, Sub-clause (iii) stood as follows :-
in the cases referred to in Clause (c) in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.
This substituted clause as can be readily seen from its plain language delinked the imposition of penalty from the tax avoided and, therefore, it is no more relevant for the purpose of quantification of penalty, whether any tax would have been avoided by the assessee if the returned income had been accepted. Whether or not tax had been avoided, the penalty would be quantifiable, with reference to the quantum of income concealed, if concealment is established. This quantification of penalty and change in the law cannot, in our opinion, be negatived or made otiose by treating the preceding phrase "in addition to any tax payable" by the assessee as governing the operation of the entire clause. This part of the clause is merely drawing attention to the fact that penalty would be in addition to the tax payable by an assessee. Its function is no more. Therefore, even if the tax payable by the assessee be nil, penalty may still be imposed on the assessee, if there is concealed income. It appears to us that the words "in addition to any tax payable by him" did not govern the meaning of Section 28(1)(c) as it stood earlier under the 1922 Act or of Section 271(1)(c) as it stood before its amendment by the Finance Act, 1968. The penalty was nil there not because the tax payable was nil, but because penalty was measured with reference to the tax that would have been avoided if the income as returned by the assessee had been accepted as correct income. It is pertinent to note that tax payable by the assessee was not equal to the tax on the returned income. It was always with reference to the total income as determined by the assessment order. The difference between the tax on the total income and the tax payable on the returned income was the tax, which would have been avoided if the income as returned by the assessee, had been accepted as correct income and penalty was measured with reference to this difference and not with reference to the tax payahle on the total income. As we have noted earlier their Lordships of the Hon'ble Supreme Court brought out this point clearly in their judgment in the case of Mansukhlal & Bros, (supra). Therefore, to say that the phrase "in addition to any tax payable by him" governed the quantification of penalty and if there was no tax payable, there would be no penalty, would be correct only in the peculiar setting of the Clause (iii) of sub-section (1) as it stood before its amendment by the Finance Act, 1968. Two things were indicated as payable, namely, the tax payable by the assessee plus the additional sum payable by way of penalty. Theoretically, both could subsist independently, but because earlier one was to be calculated with reference to the difference between the assessed tax and the tax on the returned income, the second sum became nil if the first sum was nil, but if the changed measure of penalty created the possibility as indeed it did under the amended provisions effective from 1-4-1968 that the quantum of penalty could be determined de hors, the amount of tax avoided by the assessee, there is nothing in the language of Clause (iii) which would prohibit such determination on the short ground that tax payable on the assessee on the assessed income was nil. To read such a prohibition into Clause (iii) of sub-section (1) of Section 271 would be introducing words in the section for which there is no warrant or authority. The amendment done by the Legislature would be negatived if interpretation, as above is placed on the wordings of Clause (iii) of sub-section (1) of Section 271 as amended with effect from 1-4-1968.
30. The aforesaid system of quantifying penalty was re-amended with effect from 1-4-1976 by the Taxation Laws (Amendment) Act, 1975. The amended Clause (iii) with effect from 1-4-1976 read as below :-
(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.
31. The measure of penalty has, thus, again become the tax sought to be evaded by the assessee as was the position prior to 1-4-1968, but there is one important difference in the two provisions. Under the old provision which was operative from 1-4-1962 to 31-3-1968, the tax sought to be evaded was not to be computed with reference to the concealment of income, but with reference to the difference between the tax on the returned income and the tax determined finally by the assessment order. In Mansukhlal & Bros, case (supra), their Lordships of the Hon'ble Supreme Court brought out this aspect of the old law very vividly and clarified that the law, as prevailed then, did not permit linking of the penalty with reference to the tax calculable with reference to the concealed income. Their observations may be noted, at this stage, as below :-
Penalty was not restricted to tax evaded by reason of concealment.
At page 550, their Lordships noted the rival contentions as below :-
It is contended, in the present case, by counsel for the appellant that if imposition of penalty under Section 28 partakes of the character of additional tax the section ought not to be construed in such a manner that the penalty can be imposed in an amount wholly disproportionate to the amount concealed. The learned Solicitor- General, on the other hand, maintains that the object of the provisions relating to penalty contained in Section 28 is to provide for an effective deterrent against tax evasion and that object can be achieved only if the penalty can be imposed irrespective of the amount of concealment so far as Section 28(1)(c) is concerned.
The view of the assessee was negatived by their Lordships, when they observed at page 554 as below :-
In the above view of the matter, it must be held that the penalties which have been provided by Section 28(1) are meant for the acts of omission or commission which are set out therein and once an assessee is proved to have been guilty of them the penalty provisions are attracted.
32. The above view of the law was not intended by the Legislature to be brought back from 1-4-1976 onwards when the Legislature again made measure of penalty linked with tax avoided and that is why the language of Section 271(1)(iii) effective from 1-4-1976 is different from the language of Section 271(1)(iii) as' it stood from 1-4-1962 to 31-3-1968. The measure of penalty is not the difference between the tax determined on regular assessment and the tax which would have been payable by the assessee if the originally returned income has been taken as the correct income. Instead of that, the measure of the penalty has now been made the tax sought to be evaded by reason of the concealment of the particulars of his income or the furnishing of inaccurate particulars of such income.
33. The Legislature was aware, while enacting the law as above that there would be situations where even though income had been concealed by the assessee, there might be no tax payable on the finally determined total income and in such a case the amount of tax sought to be avoided by reason of concealment of particulars of his income would naturally be nil, for nil tax was avoided in fact. Apparently, the Legislature did not want this situation to re-emerge and so it brought Explanation 4 to Section 27l(1)(c) on the Statute Book simultaneously giving meaning to the expression "the amount of tax sought to be evaded". Clause (a) of the said Explanation 4 provided that "in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income". In view of this Explanation where total income, as finally assessed, is less than the concealed income, which would be the case when the total income is nil or the total income is a minus figure, i.e., loss or the total income is a positive figure, but less than the income concealed, the penalty would not be nil, but it would have to be worked out on a hypothetical basis taking the concealed income itself as the total income for that limited purpose and working out tax thereon. This tax would be the measure of penalty in terms of the newly amended Clause (iii) of sub-section (1) of Section 271. In view of this position of law, we are not prepared to accept the contention of the learned counsel for the assessee that Explanation 4 filled up the lacuna, which existed in the law earlier. The law prior to 1-4-1968 did not link the quantum of penalty with the tax on concealed income as explained by their Lordships of the Hon'ble Supreme Court in Mansukhlal & Bros.' case (supra). It was linked with the difference between the assessed income and the returned income. In the above scheme, there was, prima facie, no need for a provision like Explanation 4. From 1-4-1968 to 31-3-1976, the measure of penalty was not tax evaded or sought to be evaded, but the concealed income itself. Apparently, there would be no need for introducing a provision like Explanation 4 at this stage. Explanation 4 had to be brought in when the measure of penalty was amended and it was linked with the tax on concealed income. Apparently, to determine tax on concealed income, in a situation where the total income would be less than the concealed income, would be frustrated without the aid of Explanation 4. Therefore, the Explanation 4 is a new provision which had to be brought on the Statute Book of effectuate the new law introduced with effect from 1-4-1976. Its purpose is not to fill up any gap, but to activate the law itself.
34. The decision of the Hon'ble Kerala High Court in Rowther Bros.' case (supra), deals with the provisions, as amended with effect from 1-4-1968. At page 356 the following interpretation has been placed by their Lordships on the amended provisions :-
It would be noticed that under the section all that is required for the imposition of a penalty under Clause (c) of sub-s. (1) of the section is that the officer concerned must be satisfied that any person has concealed the particulars of his income or has furnished inaccurate particulars of such income. In other words, for the purposes of Clause (c), there is no need to find any failure to furnish a return or failure to comply with a notice, etc., which are the necessary ingredients under Clause (a) and (b). Again in the matter of computation of penalty under Clause (a) and (b) it would be seen that under the Sub-clauses (i) and (ii) after Clause (c), the penalty imposed is geared to the tax payable or avoided; whereas in the case referred to under Clause (c), it is not necessarily geared to the tax nayable, but is in addition to any tax payable (if no tax is payable this will not enter the reckoning), an amount not more than twice the amount of the income concealed or the inaccurate particulars furnished.
Their Lordships then referred to the decision of the Division Bench of the same High Court in India Sea Foods' case (supra) and elaborately quoted from the same wherein the contention of the assessee that penalty could not be determined with reference to the concealed income, but had to be determined with reference to the total income, was negatived by their Lordships. They then referred to the various judgments of the Hon'ble Supreme Court in which nil assessment was held to be an assessment in the eye of law and observed as follows :-
There are decisions which recognise that for purposes of the IT Act even a "nil" assessment has to be regarded as an assessment in the eye of law. See Esthuri Aswathiah v. CIT [1961] 41 ITR 539 (SC) and CIT v. Bidhu Bhusan Sarkar [1967] 63 ITR 278 (SC).both decisions of the Supreme Court. See also V.S. Sivalingam Chettiar v. CIT [1966] 62 ITR 678 (Mad.) CIT v. Bankipur Club Ltd. [1968] 67 ITR 491 (Pat.) etc. In the circumstances, it seems to us to make little difference that although there is a concealment within the meaning of Section 271(1) the said concealment would not, even if the concealed income be taken into account, bring the assessee within the assessable fold. This is immaterial and the Tribunal was, in our view, wrong in relying on this circumstance and in holding on this ground that the penalty was not imposaoic in law.
This view of their Lordships fully supports the stand of the Revenue.
35. The decision of the Hon'ble Madras High Court in the case of Murugan Timber Depot (supra) which reliance was placed by the assessee's learned counsel appears to us, to support the above view of the Hon'ble Kerala High Court. At page 105, the Hon'ble Madras High Court referred to the judgment of the Hon'ble Gujarat High Court in the case of CIT v. R. Ochhavlal & Co. [1976] 105 ITR 518, wherein their Lordships had made a distinction between a part of section creating penal liability in abstract and the latter part quantifying the said penal liability. According unite Hon'ble Madras High Court, there was no justification to create the compartments of the above nature into the section. It was, in this context that they pointed out at page 105, inter alia, as below :-
Thus, it will be seen that the Gujarat High Court had compartmentalised Section 271(1), one compartment consisting of clauses (a), (b) and (c) and the other compartment consisting of clauses (i), (ii) and (iii) and the former compartment creating a "penal liability" in abstract and the latter compartment quantifying the said "penal liability" in terms of money. If anyone of the three clauses (i), (ii) and (iii) of Section 271(1) contemplated the levy of penalty unrelated to the tax payable by an assessee, there may be something to be said in favour of such compartmentalisation. As we have pointed out already not one of the three clauses (i), (ii) and (iii) of Section 271(1) contemplates a penalty unrelated to the tax payable. In such a context, in our opinion it is too technical to construe the section as creating a penal liability in abstract by clauses (a), (b) and (c) and quantifying the said penal liability by clauses (i), (ii) and (iii) of Section 271(1). If the reasoning of the Gujarat High Court is to be accepted, the moment anyone of the defaults contemplated by clauses (a), (b) and (c) of Section 271(1) has occurred, there is an automatic attraction of the liability, but the quantification of the liability may lead to no penalty being levied. As we pointed out already, if in every case the quantification of penalty will lead to a nil amount, it is reasonable to construe that the liability to penalty itself is attracted only when tax is payable by an assessee. This conclusion of ours is in consonance with the object of the section, namely, to prevent evasion of tax. Once it is found that no tax is payable, there is no question of evasion of tax and consequently there could be no attempt to prevent such evasion. In our view, the very structure of the language of Section 271(1) does not admit of such compartmentalisation as clauses (a), (b) and (c) creating in themselves a "penal liability" in abstract and clauses (i), (ii) and (iii) in themselves quantifying the penalty for the liability and yet where no tax is payable, the penalty being "nil" in every case, thereby rendering the penalty only a technical and purposeless one. As a matter of fact, the amendment of Clause (iii) of Section 271(1) by Section 19 of the Finance Act of 1968, with effect from April 1,1968 will support our conclusion in this behalf. As far as the present case is concerned, as we pointed out already, even Clause (iii) contemplated the penalty as a measure of the tax only. But when that clause was amended by the Finance Act of 1968, the penalty became not a measure of the tax, but it was made as a measure of the income in respect of which the default has been committed because Clause (iii) of Section 271(1), as substituted by Section 19 of Finance Act of 1968, stated :
In the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.
Simply as a matter of construction of Section 271(1) we come to the conclusion that the liability to penalty is attracted only in cases where some tax is payable by the assessee and when no tax is payable by the assessee, the liability to penalty is not at all attracted. (Emphasis supplied) From the above, it is clear that, according to the reasoning of their Lordships, the quantification of the penalty, so long as it is related with the tax payable, would be nil. If tax payable is nil, but if the measure is changed, apparently the quantification of penalty would be possible and that was the essence of the change brought about by the Legis'ature with effect from 1-4-1968. The above case cannot, therefore, be an authority for the proposition that even after the amendment of 1-4-1968, the quantification of penalty remained geared to the tax payable and if tax payable was nil, the quantification of penalty could not be proceeded with.
36. The view of their Lordships of the Hon'ble Madras High Court with regard to the change in law with effect from 1-4-1968 regarding Section 271(1)(iii) became more explicit in the decision in the case of M. Radhakrishniah (supra). After noting down the provisions of Section 271 (1)(iii) at page 136, their Lordships proceeded to explain their interpretation of the said clause as below :
There is no mistaking the meaning of the language of Section 27l (a)(iii) as found in the text. Under this clause, there is both a minimum and a maximum penalty. The minimum penalty is equal to the income in respect of which particulars have been concealed. The maximum is double the income in respect of which particulars have been concealed. It will be seen that in both cases the validity of the penalty depends on its being relatable to the income in respect of which particulars have been concealed. This means that if particulars have been concealed in respect of one rupee of income, the minimum imposition will have to be one rupee by way of penalty....If in respect of one rupee particulars have not been concealed, then penalty cannot be levied on that rupee, either at a minimum of one rupee or at the maximum of two rupees or any amount in between.
The reason why this penalty provision is so worded is not far to seek. The yoke of income-tax itself is already a heavy burden, especially on the higher income brackets and a too high penalty would break the necks of most taxpayers. Besides, the measure of penalty is not on the tax effect, but on the income aspect, which would tend to make the penalty burden greater still. Because of these considerations, Parliament obviously took care to lay down that penalty, as an equivalent of income, cannot be levied unless the income in such and such an amount can be held to have been concealed. This is why we have stated that for each rupee concealed there can be a minimum penalty of one rupee and a maximum penalty of two rupees, whereas for each rupee not concealed, there cannot be any penalty at all. This clearly is the meaning and intendment of Section 271(1)(iii) of the Act.
From the above, it is clear that the old logic, which applied before 1-4-1968, would no more be operative after 31-3-1968 in order to quantify the quantum of penalty. The quantum of penalty being geared to income concealed is, in no way, related with the amount of tax payable and, therefore, whether or not to impose penalty in a given case would not depend on the amount of tax payable by the assessee. Even if the tax payable is nil, but, if there is concealed income penalty with reference to it would be leviable. The decisions of the Hon'ble Madras High Court thus, do not lend any support to the assessee's contention.
37. The contention of the Ld. counsel that the phrase "in addition to tax payalne" governs and dominates the interpretation of Clause (iii) and that, if once an answer to the above was found to be nil, there would be no occasion to proceed further with the computation of the sum payable by way of penalty, if taken to its logical conclusion, will make the working of Clause (iii), as amended with effect from 1-4-1968 and then with effect from 1-4-1976, nugatory in certain circumstance, which are otherwise qualitatively similar to those in which the provision, will according to the Ld. counsel work, and, in the case of the clause effective from 1-4-1976, even the Explanation 4 to the said clause will be rendered otiose. Thus, for example, according to this logic, if tax payable on the total income is a positive figure, however small say, Rs. 100, penalty with reference to concealed income would be leviable, howsoever big be the amount of concealment, say Rs. 10 lacs (the quantum of minimum penalty being Rs. 10 lacs), but, if the total income be nil, in the above case (quantum of loss declared being a little more than on identical concealed income, the penalty would be nil, because the tax payable is nil. This result is repugnant to the very scheme of the change in Clause (iii) brought about by the Finance Act, 1968. This result becomes all the more accentuated, when we consider Clause (iii) as amended with effect from 1-4-1976 along with Explanation 4 thereof. We have indicated above that the situation visualized by Explanation 4 viz., where total income is less than the concealed income will come about when concealed income is set off against losses under heads declared and accepted. Such losses may be less than the concealed income, may be equal to the concealed income and may be more than the concealed income. In the first case, total income would be a positive figure and may be that tax is payable thereon, if such income is more than the minimum income liable to tax. In the second case, total income will be nil and in the third case, total income would be minus figure, i.e. loss. According to the Ld. counsel, Explanation 4 was introduced to avoid the escapement from penalty in the latter two situations (See para 14 supra). But if the phrase "in addition to tax payable" is held to be governing the operation of Clause (iii) as above, Explanation 4 will become inoperative in the latter two situations for, according to theassessee's logic, if there is not tax payable, the exercise of calculating penalty must stop here. There is no occasion to advance further, Explanation 4 to the section notwithstanding. In our opinion, there is no warrant in the plain language of Section 271 (1)(iii) to place such an interpretation on it as will defeat the purpose of amending the said Clause (iii) with effect from 1-4-1968 and curtail its scope and natural operation.
38. The learned counsel for the assessee had also relied on the judgment of the Hon'ble Madhya Pradesh High Court in the case of Jaora Oil Mill (supra). In that case, the assessee had returned a loss of Rs. 2 lacs. The assessment, in that case, was made under Section 144 on a total income of Rs. 50,000 impliedly making an addition of Rs. 2,50,000 by way of income, which the assessee had not disclosed as a result of which, after setting off of the declared loss of Rs. 2 lacs against the income earned at Rs. 2,50,000 the net income or the total income left to be assessed was Rs. 50,000 only. On that basis, penalty of Rs. 2,50,000 was imposed by thelAC. On second appeal, howeve-r, the Income-tax Appellate Tribunal held that as total income assessed was Rs. 50,000 only, escapement of income could be deemed to be to that extent only and accordingly confined penalty to Rs. 50,000. On a reference to the Hon'ble Madhya Pradesh High Court the above view of the Tribunal was upheld by their Lordships on the ground that the word "income" used in Section 271(1)(iii) did not include loss. This is what their Lordships stated at page 425 :
It is not necessary for us to discuss in detail the natural or the statutory meaning of the word "income", but even in its broadest connotation, it refers to monetary return "coming in" and is conceptually contradictory to "loss". Section 4 of the Act taxes income and not loss. The contention that a loss can be used to set off the income in a particular year and can be carried forward uncertain circumstances to the following assessment years will not by any logic convert it into an income.
The above decision was met by the Ld. Departmental Representative by reference to the judgment of the Hon'ble Kerala High Court in India Sea Foods' case (supra), wherein similar reasoning was negatived by their Lordships by observing, inter alia, as follows:
Sub-clause (iii) of Section 27 l(1)(c) states that in cases wherein assessee is found to have concealed particulars of his income or furnished inaccurate particulars of such income, he may be directed to pay by way of penalty, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which particulars had been concealed or inaccurate particulars had been furnished. The words "in respect of which the particulars have been concealed or inaccurate particulars have been furnished" qualify the preceding expressing the amount of the income. By using these qualifying words, Parliament had made it clear that the quantification of penalty under Sub-clause (iii) is to be made with reference to that amount of the income of the assessee in respect of which there was concealment of particulars or furnishing of inaccurate particulars. Hence, it was not possible to construe the word "income" accurring in sub-section (iii) as connoting the total income of the assessee as assessed under Section 143,144, or 147. The word has to be understood as having been used in the same wide sense in which it has been used in Clause (c) of Section 271(1). The quantification of penalty has, therefore, to be made, not with reference to the total taxable income of the assessee as determined in the assessment order, but with reference to the amount of the assessee's income, including expenditure, deductions, etc., in respect of which the assessee had either concealed particulars or furnished inaccurate particulars.
He also drew our attention to the judgment of the Hon'ble Supreme Court in the case of J.H. Gotla (supra) wherein their Lordships have expressed the opinion that "income" includes "loss". Of course, the above observation was made in connection with the provisions of Section 16(3) of the Indian Income-tax Act, 1922, but there also the word "income" has been used with reference to assessment and the same is the context, in the present case, where the assessment of income is the basis for action.
39. In our opinion, there is merit in the contention of the Ld. Departmental Representative. We feel that the anlysis of the law, as done by their Lordships of the Hon'ble Kerala High Court, is correct. Apart from it, the logic that penalty should be imposed with reference to income does not break down in a case, where the assessee conceals income with a view to increase losses. What is being done in such a case is inflation of losses by concealing particular items of income in the sense of 'incoming'. Thus, concealment even in such a case, as the one considered by their Lordships of the Hon'ble Madhya Pradesh High Court, was of the income to the extent of Rs. 2,50,000 and it was as a consequence of the existence of loss of Rs. 2 lacs that the total income became Rs. 50,000. Penalty is, however, not referrable to the quantum of total income, but to the quantum of the "income concealed". Whatever was the quality of the income of Rs. 50,000 is also the quality of the income of Rs. 2 lacs and it will not be logically correct to say that because to theextentofRs. 21acs the loss was set off against the positive income, the positive income alone was concealed by the assessee. Therefore, in our humble opinion, on the logic of the Hon'ble Madhya Pradesh High Court itself, it will have to be found out in the present case as to whether what was concealed by the assessee was an item of "income" and the mere fact that such item of income was set off against earlier year's losses would not make the said item, which had been concealed by the assessee, non-existent.
40. Primafacie, the decision of the Hon'ble Punjab and Haryana High Court appears to give support to the interpretation placed by the assessee, but, in our opinion, that decision has proceeded on the footing that penalty became tax based once again as earlier in between the period 1-4-1962 to 31-3-1968 and that for working out the tax based penalty it was necessary that there should be tax payable and if, there was no tax payable, according to their Lordships, there could be no imposition of penalty. Their Lordships did not consider the provisions of law as were operative for the purpose of the decision of the reference before them, namely, the law operative from 1-4-1968 to 31-3-1976. Instead, they decided the appeal on the basis of the law operative from 1-4-1976 and on the presumption mentioned above. It cannot, therefore, be regarded as an authority for considering the law during the aforementioned period.
40A. The decision of the Hon'ble Kerala High Court referred to above, namely Rowther Bros.' case (supra) gives in our humble opinion a comprehensive cogent and rational interpretation of Section 271(1)(iii) as operative with effect from 1-4-1968 and, with respect, we would follow the said interpretation.
40B. In view of what we have stated above, we will reject the assessee's contention that in law penalty is not imposable, in the present case, because the total income, as finally determined after the order of the Tribunal, is nil, in the present case and no tax is payable by the assessee for the year under consideration. The quantum of penalty should, in our opinion, be computed in the present case, with reference to the concealed income, if any, and, therefore, it is now the stage to go on to consider as to whether on merits it is possible to hold or not, in the present case, that there is concealment of income by the assessee, with reference to which penalty is exigible.
41. It is not disputed by the assessee's learned counsel that, arithmetically speaking the provisions of the Explanation to Section 271(1)(c) were attracted, in the present case, and, therefore, it was for the assessee to discharge the burden of showing that the difference between the assessed income and the returned income did not arise on account of the assessee's fraud or gross or wilful neglect. By referring to the judgment of the Hon'ble Allahabad High Court in the case of Mohinder Singh (supra), the point made out by the learned counsel for theassessee was that the quantum of concealed income would not automatically be determined by the aforesaid Explanation and that for the purpose of imposition of penalty in terms of Section 27l(1)(iii). the whole thing will have to be re-examined once again with a view to find out the particulars of concealed income or income in respect of which inaccurate particulars have been filed. In the case of Mohinder Singh (supra), even though the addition to the total income on account of income from undisclosed sources was Rs. 25,000, the Tribunal held, in penalty proceedings, that for the purposes of imposition of penalty, the quantum of income was Rs. 3,000 only. Section 271(1 )(iii) does not touch upon the question of onus that is the domain of the Explanation to Section 271(1)(c). This being so, the presumption against the assessee regarding concealment of income did arise by the operation of the Statute because the difference between the assessed income and the returned income was more than 20% of the assessed income.
42. According to the ITO, the entire addition made to the assessee's total income on account of low yield of groundnut oil, khali and soap represented concealed income of the assessee, for the unaccounted sale proceeds of the aforesaid items could have, no other character, but that of revenue receipts, which had not been disclosed by the assessee, though corresponding expenditure relating thereto stood debited in the accounts. The Ld. CIT (Appeals) has held and which finding has been supported by the learned counsel for the assessee, that the assessee has been able to show that the addition, in question, was made merely on estimate by rejecting the assessee's accounts and that such addition was not made on the basis of specific instances of sales outside the books of account or specific instances of suppression of production etc. and therefore the assessee had discharged the onus which lay on it by demonstrating as above.
43. Before we adjudicate upon these submissions, let us first look at what the Tribunal held in quantum proceedings on this subject. It is true that the findings in quantum proceedings are not binding in penalty proceedings, but, nevertheless it is on good authority that one can say that the finding of the Tribunal in quantum appeal isgood and relevant piece of evidence and unless there is contrary evidence in the penalty appeal, the finding recorded in the quantum appeal should not be lightly brushed aside. [See M. Habibullah's case (supra)]. In the quantum appeal, the Tribunal pointed out, inter alia, as below :
(i) The production registers which have been commented upon both by the Income-tax Officer and the Appellate Assistant Commissioner in their orders, was also produced before us and we have gone through it. After going through the said registers, we are at one with the learned Appellate Assistant Commissioner in holding that the said register cannot be regarded as a verifiable and reliable record of the assessee's day to day production. There are numerous overwritings, cuttings, erasures, as the Income-tax Officer has pointed out....
(ii) that 'the assessee did not produce record of original entry on the basis of which the various cuttings, erasures etc. might have been done by the assessee in his aforementioned register from time to time'.
44. On the basis of the aforesaid findings, the Tribunal held that, "the authorities below were justified in discarding the said register as not reflecting full and true record of the assessee's production of groundnut seed and thus resorting to making the best judgment estimate of the assessee's production". The Tribunal thereafter noticed that "The assessee's own analysis of purchases of groundnuts shows that the average content of kernel was 66.66%", yet the assessee had shown final production at 62% only. The Tribunal, therefore, felt that it was for the assessee to explain "as to why his production of 62% should be accepted in the face of aforementioned actual laboratory analysis result ?" According to the Tribunal, "When the assessee's own analysis shows a kernel content of 66.66%, it would definitely need a justification from the assessee to support his figure of 62% only". The Tribunal noted that the assessee gave two explanations in support of his figures. According to it, "The first was that the quality of crop purchased this year was poorer than that purchased in the immediately preceding assessment year. This explanation is too general and vague to be of much help, more particularly when the actual purchases made by the assessee during the year under consideration were subject to laboratory analysis the result of which are known to us. The record of the analysis of the actual purchases goes to show, as noted above, that whatever be the quality of the groundnuts crop purchased by the assessee during the year under consideration, in comparison to what it had purchased in the immediately preceding assessment year, its content of kernel was in any case 66.66% of the groundnuts purchased. This is the basic figure from which there is no getting away. So, the explanation that there was a poor crop this year, does not explain the 62% yield disclosed by the assessee. The second explanation given by the assessee's learned counsel was that the moisture contents of the kernel was 13.2% and, therefore, it would not be abnormal if about 4% to 5% moisture got evaporated, more particularly when, during the year under consideration, the assessee had done decortication over a longer period than in the immediately preceding assessment year. Without doubt there is a grain of truth in the above explanation of the assessee, but, then, it has to be remembered that the assessee has already claimed loss on account of driage separately to the extent of 381 quintals which, as noted above, works out to 4.8% of the kernel obtained after decortication of the groundnut. The assessee cannot press the explanation twice over. At the best, the assessee can claim that from the yield of 66.66% a further deduction of 381 quintals ought to be allowed to it on account of loss in the kernel weight due to driage". It was after meeting the aforesaid points-of the assessee that the Tribunal worked out the total weight of groundnut seeds available for crushing in expellers to obtain oil at 8028 qtls., at page 12 of its order against which the assessee had admitted crushing of 7480 qtls. The difference between the two i.e. 548 qtls. was held by the Tribunal to be the output of dana with the assessee, which should have been crushed by it over and above that shown by it in the Central Excise Register. Out of the aforesaid groundnut dana oil extraction was taken by the Tribunal at 42% as estimated by the Ld. AAC for, according to the Tribunal, that yield was realistic as per its observations at page 14 of the order. On this basis, the yield of oil and khali was worked out by the Tribunal in respect of which addition was made, as noted above, amounting to Rs. 1,66,970 and Rs. 15,225.
45. In the case of soap, similarly the Tribunal noted that the figures of input for production of soap as per the assessee's own declaration would yield more soap again taking the acknowledged formula of production of soap, which was disclosed by the authorities below to the assessee and which could not be dislodged by the assessee as scientifically erroneous or misleading, nor were any facts brought on record by the assessee to show that in its case the mixture of inputs was not as per the said scientific formula. The following observations of the Tribunal, in this regard, are worth noting :
36. We have carefully gone through the rival submissions and the facts placed on record. Taking into account the discrepancies indicated by the Income-tax Officer in the production record of the assessee, we feel that the authorities below have been justified in discarding the trading results of the assessee as per those books of account and in estimating the production soap. The estimate has, of course, to be to the best of the judgment and while doing so due regard has to be given to the technological aspects of the soap manufacturing which has been placed on record by the rival side. In this connection, one thing, which strikes us as significant, is the absence of any denial on the part of the assessee of the averment made by the Income-tax Officer that in order to manufacture soap caustic soda solution of 36° BE was the ideal solution and that the consumption ratio of this solution to the oil is 1: 2, that is, for 1 unit of the above solution of caustice soda 2 units of oil were needed, nor has the assessee disputed the computation given by the Income-tax Officer that 41 lqtls. of 36° BE solution would absorb 878 qtls. of oil and that in order to prepare the aforementioned quantity of solution it would take 126 qtls. of solid caustic soda and further that 152 qtls. of solid caustic soda had, in fact, been consumed by the assessee (of this 85 qtls. was directly purchased as solid caustic soda and 159 qtls. was purchased at 45% caustic solution which on conversion would give 67 qtls. of solid caustic soda (149 x 45/100). Again it has not been denied by the assessee that consumption of 152 qtls. of solid caustic soda would yield 494 qtls. of solution of caustic soda of 36° BE (1 of solid and 2.25 of water). The difference between the two figures, namely, 494 qtls. and 41 lqtls., that is, 83 qtls. represents the consumption of caustic soda solution of 36° BE, the production of which is not reflected on the basis of the consumption of oil of 878 qtls. 83 qtls. is roughly 1/5th of 411 qtls. The clear inference, therefore, appears to be that 1/5th of the production of soap is not reflected in books of account of the assessee. It was open to the assessee to have proved that 83 qtls. of caustic soda solution as above has either been wasted or that this could be consumed by utilising 878 qtls. of oil. No such attempt appears to have been made nor there is any certificate from the expert of HBTI, Kanpur disputing the technical averments made by the Income- tax Officer in his submissions to the Appellate Assistant Commissioner. Presumption that 878 qtls. of oil, has been consumed does cause no prejudice to the assessee, for, as per assessee's own submission, the soap stock absorbs less of caustic soda, and, therefore, the weight of 36° BE solution of caustic soda, which has been presumped to have been consumed by 878 qtls. of oil would, on the hypothesis of consumption of soap stock, be still less, leaving thereby more than 83 qtls. of caustic soda solution to be absorbed by oil, which, if true, give still higher production. Taking into account the broad facts of the case, we feel that it would be a fair estimate if the production of soap by the assessee is taken at 1430 qtls. (1225 + 1/5th of 1225). The addition on account of soap account would, therefore, be reduced to Rs. 54,120 (205x264) as against the figure of Rs. 70,224 sustained by the learned Appellate Assistant Commissioner. While doing so, we discard the hypothesis that the assessee had used fillers. There is no evidence on record to show the use of fillers. The certificate of Mr. Yadav is then, there to the effect that hardness of the soap can be achieved by (boiling the soap after the graining for the required duration'. We accept the assessee's argument on this point.
45A. In the face of these observations of the Tribunal and taking into account the evidentiary value of the aforesaid findings, we have to see as to what is the additional evidence produced by the assessee before the Ld. CIT (Appeals). Admittedly, there is no additional evidence whatsoever led by the assessee before the Ld. CIT (Appeals) in penalty proceedings, which might go to show that the above findings stand dislodged in the penalty proceedings. Even re-appraisal of the facts on record cannot lead in our opinion to any other conclusion than the one reached by the Tribunal in the quantum proceedings. May be, the figures of production, which have been made the basis for penalty are estimated ones, but these estimates have been resorted to on the basis that the assessee's records were full of mistakes, cuttings, overwritings, erasures etc., that the assessee did not produce the books of original entry to justify the said cuttings etc., that the elaborate analysis report of the assessee's production showed much higher production of dana than disclosed by the assessee and that there was no proper explanation from the assessee for the aforesaid lower output and that the non-disclosure of part of dana extracted by the assessee would lead to the natural conclusion that the said dana had been crushed and its product obtained and sold. The above findings of the Tribunal are final by now and being findings of fact have to be relied upon, unless the assessee was unable to show, by some additional evidence, that the production was not as determined by the Tribunal. In the case of soap, it may be that the mistakes of the type indicated in the case of Moongfali dana were not there, but, nevertheless, the inputs should have given a certain scientifically determinable output, and, when that output is not shown by the assessee and no explanation is given to show that part of such output might have been lost to the assessee an adverse inference is entirely justified. The inference that a certain amount of input would give rise to a certain amount of production of a commodity like, soap, where caustic soda and oil are mixed and baked to a certain standard, is clearly warranted both in quantum proceedings as well as in penalty proceedings and the inference of under production in these circumstance flows in the natural course of events. To prove the existence of specific instances of sale outside the books of account by the Assessing Officer is not necessary, for, as noted earlier, the initial onus was on the assessee and not on the department in terms of the Explanation to Section 271 (1 )(c) to show that the returned income was not less than 80% of the assessed income. It is not a case of routine estimate on account of the assessee's gross profit being low or the production record not being available or maintained. Here production record has been maintained. It has been found to have been trifled with. The laboratory tests have indicated the existence of more production of dana. The input of caustic soda and oil show scientifically a certain given output, which is not denied by the assessee. How can then it be stated that the assessee has discharged the onus which was on it to show that there was no gross or wilful neglect on the part of the assessee in maintaining its books of account and in declaring its trading results? As the Ld. Departmental Representative had rightly pointed out the manner of the keeping of the books of account and the trifling with them itself was an act of gross or wilful neglect and it was re-enforced by cogent evidence of laboratory tests etc. The addition that has been made to the assessee's total income represents the sale proceeds of the items produced outside the books of account and sold outside the books of account. The non-existence of the stocks with the assessee in the closing stock indicates the sale thereof outside the books of account not disclosed by the assessee. To say that this is merely an estimate, in the circumstances of the present case, would not be correct. As such, we feel that the Ld. CIT (Appeals) was unjustified on merits in giving the finding that the onus, which was on the assessee, stood discharged with regard to the additions made on account of groundnut oil, khali and soap account. The additions sustained by the Tribunal in quantum appeal with regard to the Moongfali and soap account do, in our opinion, truly reflect the extent of concealed income of the assessee (i.e. Rs. 2,36,375) and, therefore to the extent of the said additions, penalty is imposable on the assessee on the above account in terms of Section 271(1)(iii). The departmental appeal, in the circumstances, stands partly allowed.
46. In the assessee's appeal, we do feel that imposition of penalty with reference to the sum of Rs. 5,000 being expenses under the head Basa and Rs. 5,620 on account of disallowance of General expenses and Rs. 5,000 on account of expenses incurred on maintenance and running of cars was not justified by the Ld. CIT (Appeals). The assessee had added back Rs. 1,000 out of Basa expenses and Rs. 2,000 out of General expenses on the ground that they represented non-business expenses. Instead of the aforesaid figures, the Assessing Officer and the Appellate Authorities have estimated slightly higher figures by way of additions. These are mere estimates and as the assessee has not withheld the information from the department regarding nonbusiness expenses having been debited to the aforesaid expenses, the case of penalty, in our opinion, is not made out with regard to the disallowances under the head Basa expenses and General expenses. About expenses regarding car, again, we feel that the situation is similar. The expenses have been incurred by the company and there is no evidence to show that there is personal user of the cars in question otherwise than for company's business. The whole thing is so inter-mixed in a big organisation that it is difficult to hold on an averment like the one above that concealment of income has been done by the assessee or inaccurate particulars have been filed by the assessee. Every addition does not lead to imposition of penalty. For sustaining penalty, there must be more firm and solid footing, as has been found by us above with regard to the additions on account of low yield. The facts regarding the above additions are not of this category and, therefore, we feel that the imposition of penalty with regard to these items was not justified. As regards the item of Stores, the assessee did not press it. Therefore, we will uphold the imposition of penalty with regard to this item. Subject to the above observations, the assessee's appeal stands partly allowed.