Rajasthan High Court - Jaipur
Rasoolji Buxji vs Commissioner Of Income-Tax. on 29 April, 1988
Equivalent citations: (1988)72CTR(RAJ)178, [1988]174ITR328(RAJ), [1988]40TAXMAN309(RAJ)
JUDGMENT
J. S. VERMA C.J. - This order shall dispose of all the above nine references which relate to the same assessee. In I.T. References Nos. 2 to 9 of 1980 made by the Tribunal under sub-section (1) of section 256 of the Income-tax Act, 1961, a set of common questions of law arising out of the Tribunals common order relating to the assessment years 1955-56 to 1961-62 and 1964-65 have been referred on the basis of a common statement of case drawn up by the Tribunal. I.T. Reference No. 38 of 1986 is also in respect of the same assessee and relates to the very same assessment years but is a result of a direction of this court under sub-section (2) of section 256 of the Act to refer a common question of law said to arise out of the same order of the Tribunal which is treated as not covered by the questions already referred by the Tribunal under section 256(1) of the Act. This question also has to be answered on the same facts.
The common question of law in I.T. References Nos. 2 to 9 of 1980 referred by the Tribunal at the instance of the assessee under section 256(1) of the Act for all these assessment years are the following, namely :
"1. Whether, on the facts and in the circumstances of the case, in respect of the assessment years 1955-56, 1956-57, 1957-58, 1958-59, 1959-60, 1960-61, 1961-62 and 1964-65, legally any penalty under the provisions of section 271(1)(c) of the Act could be levied ?
2. Whether, on the facts and in the circumstances of the case, the Inspecting Assistant Commissioner had legally taken action under section 271(1)(C) of the Income-tax Act, 1961, when the first assessment was made under section 23(3) of the Act of 1922 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the quantum of penalty for concealment of income in the return submitted prior to April 1, 1962, could be determined by applying the law as it stood after April 1, 1962, and not before that date ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Explanation to section 271(1)(C) as it stood on the date of levy of penalty could be invoked ?
5. Whether, on the facts and in the circumstances of the case, the Income-tax Officer was satisfied during the course of assessment proceedings in respect of all the years under consideration that the assessee had concealed its income or furnished inaccurate particulars of its income within the meaning of section 271(1)(c) of the Income-tax Act, 1961 ?"
The common question of law in respect of the very same assessment years which has been referred as a result of direction under Section 256(2) of the Act in I.T. Reference No. 38 of 1986 is the following :
"Whether, on the facts and in the circumstances of the case, the income-tax Appellate Tribunal, Jaipur Bench, Jaipur,. was justified in imposing minimum penalty upon the assessee under section 271(1)(c) of the Income-tax Act, 1961, merely on the basis of the admission made by the assessee in his letter dated June 11, 1969, to the Commissioner of Income-tax for purposes of settlement during reassessment proceedings ?"
The I.T. References Nos. 2 to 9 of 1980 may be divided into three categories for the purpose of decision of these questions as suggested by learned counsel for the assessee. These references relate to the assessment years 1955-56 to 1961-62 and 1964-65. I.T. Reference No. 8 of 1980 relates to the assessment year 1964-65 for which the original return was filed by the assessee on September 26, 1964; the original assessment was made on March 25, 1969 and the reassessment was made on September 26, 1969. This reference is a separate category and even according to the arguments advanced on behalf of the assessee, it is governed by section 271(1)(c) together with the Explanation thereto inserted with effect from April 1, 1964 in the Income-tax Act, 1961. Accordingly, the view taken by the Tribunal against the assessee on all the common questions referred therein including that on the common question in I.T. Reference No. 38 of 1986 pertaining to the assessment year 1964-65 must be held to be justified.
For the assessment years 1955-56 to 1961-62, original returns were filed on different dates prior to coming into force of the 1961 Act on April 1, 1962, and the original assessments also in respect of the assessment years 1955-56 to 1959-60 were made prior to April 1, 1962, even though the reassessment was made in all these cases on September 26, 1969. Income-tax References Nos. 9 of 1980, 4 of 1980, 7 of 1980, 3 of 1980 and 5 of 1980 relate to the assessment years 1955-56, 1956-57, 1957-58, 1958-59, respectively, and fall in one category. The last category comprises I.T. References Nos. 6 of 1980 and 2 of 1980 relating to the assessment years 1960-61 and 1961-62, respectively, for which the return was filed prior to the coming into force of the 1961 Act on April 1, 1962, and the original assessment was completed thereafter on different dates prior to April 1, 1964, when the Explanation was inserted in section 271(1)(c) of the Act. The reassessment in these cases also was made on the same date, namely, September 26, 1969.
We are making this division at the behest of learned counsel for the assessee who has advanced his arguments on this basis. The effect, if any, of such a division for the purpose of considering the arguments shall be considered later.
The material facts are these :
As earlier stated, the assessment years covered by these nine references are 1955-56, 1956-57, 1957-58, 1958-59, 1959-60, 1960-61, 1961-62 and 1964-65. The accounting year of the assessee, M/s. Rasoolji Buxji Kathawala, Udaipur, ended on June 30, every year. The assessee claimed to have borrowed a specified sum of money on hundis. These loans were shown every year up to the assessment year 1962-63 on hundi basis. The assessee filed original returns for the assessment years 1955-56 to 1961-62 on September 26, 1957, April 27, 1958, July 24, 1959, April 8, 1960, November 11, 1960 and November 20, 1961, respectively; and the original assessments were made in respect of these years on August 31, 1959, September 17, 1960, November 25, 1960, October 9, 1961, July 31, 1963 and August 28, 1963, respectively. As earlier stated, for the assessment year 1964-65, the original return was filed on September 26, 1964 and the original assessment was made on March 25, 1969. For these assessment years, the assessee showed income in the original return at Rs. 1,55,819, Rs. 1,44,300, Rs. 1,94,303, Rs. 1,33,725, Rs. 1,33,179, Rs. 33,454, Rs. 1,49,890 and Rs. 1,46,767, respectively. The original assessments were completed on Rs. 2,36,618, Rs. 2,13,522, Rs. 2,47,582, Rs. 1,75,225, Rs. 2,55,526, Rs. 2,49,818, Rs. 2,44,940 and Rs. 3,07,290 respectively. In the original returns, the assessee alleged having taken hundi loans. The Income-tax Officer, at the time of completing the original assessment, did not question the genuineness of the alleged hundi loans and, therefore, no enquiry regarding their genuineness was made. Later, the Income-tax Officer reopened the assessments for all these years under section 147(a) read with section 148 of the Income-tax Act, 1961, on the ground that the alleged hundi loans were not genuine and that they represented income of the assessee from undisclosed sources. After the notices were duly served upon the assessee, the Income-tax Officer also wrote a detailed letter on April 9, 1965, to the assessee requiring him to furnish all the particulars of the hundi loans and documentary evidence, if any. The assessee, then requested the Income-tax Officer to grant some time to enable him to approach the Commissioner of Income-tax. On May 28, 1965, the assessee wrote a letter to the Commissioner of Income-tax. The cumulative peak of the hundi loans was Rs. 14,15,000 spread over the accounting periods corresponding to the assessment years 1956-57 to 1962-63. The assessee requested that the cumulative peak of the hundi loans amounting to Rs. 14,15,000 may be assessed as income in the hands of the assessee. It was also said in the application that the assessee was desirous of making a settlement under section 271(4A) of the Act. A prayer was made to the Commissioner of Income-tax for a direction to the Income-tax Officer to complete the reassessment proceedings initiated against the assessee in respect of the hundi transactions in this manner. This application of the assessee-firm was rejected by the Commissioner of Income-tax, vide his letter dated July 28, 1965. The assessee, then wrote again to the Commissioner on August 22, 1965 and also moved an application dated August 24, 1965/September 7, 1965 to the Chairman, Central Board of Direct Taxes, New Delhi. A grievance was made by the assessee in the application to the central Board of Direct Taxes against the rejection of its application by the commissioner It appears that the Central Board of Direct Taxes, directed the Commissioner to consider the assessees application for settlement. consequently the assessee moved a fresh application on April 25, 1969, to the Commissioner. It was specifically stated in this application of the assessee that the assessee agreed that Rs. 12,29,133 may be additionally assessed in the hands of the assessee for the assessment years 1955-56 to 1963-64, the split up of which was given therein. It was further specifically stated that the assessee agreed that in respect of these additions, the minimum penalty of 20% of the difference in tax between the income returned and income assessed may be levied under the provisions of section 271(1)(c) of the Income-tax Act, 1961. The assessee again wrote a letter on June 11, 1969 to the Commissioner of Income-tax in which the same prayer was reiterated. The assessee reiterated his consent for levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, at the minimum rate of 20% of the difference of tax between the income originally returned and finally reassessed for all these assessment years adding further that there will be no dispute regarding the quantum of penalty so imposed. The letter of the assessee-firm was signed by all its partners. It may be mentioned that on June 17, 1969, the assessee-firm also debited a sum of Rs. 12,75,000 standing under the head of hundi loans and credited this amount in the name of all the partners in their profit-sharing ratio. Accordingly, in the books of account, the amount of the hundi loans which was treated as concealed income was credited in the name of all the partners and apportioned in their profit-sharing ratio.
The Commissioner of Income-tax accepted the settlement and passed the order under section 271(4A) of the Act. Penalty was also impose under section 271(1)(c) of the Income-tax Act, 1961, according to the request and consent of the assessee. In the revised returns filed by the assessee for these years, it was stated that the surrendered amount may be taxed as income of the assessee in the respective years.
The assessee later contested the imposition of penalty but the assessee contentions have been rejected by the Tribunal. Hence, these reference made at the instance of the assessee to decide the abovequoted common questions of law said to arise out of the Tribunals common order.
The contentions of learned counsel for the assessee are the following namely :
1. It is clause (f) and not clause (g) of sub-section (2) of section 29 of the Income-tax Act, 1961, which applies in respect of the assessment years 1955-56 to 1959-60 and, therefore, imposition of penalty in respect of these years is governed by the provisions of the Indian Income-tax Act 1922, and not the Income-tax Act, 1961.
2. Even if section 297(2)(g) of the 1961 Act applies, it is section 271(1)(c) as initially enacted when the 1961 Act came into force April 1, 1962 which applies and not the Explanation inserted therein with effect from April 1, 1964.
3. For the assessment years 1960-61 and 1961-62 in respect of which the original assessments were completed after April 1, 1962, but prior to April 1, 1964, it is section 271(1)(c) as initially enacted on April 1, 1962 when the 1961 Act came into force which applies by virtue of section 297(2)(g) and not the Explanation inserted in section 271(1)(c) with effect from April 1, 1964.
4. It is the date of filing the original return which is determinative of the law to be applied and since the original return was filed for the assessment years 1955-56 to 1961-62 prior to the coming into force of the 1961 Act on April 1, 1962, the provisions of the 1961 Act cannot be applied.
5. The question of penalty has to be decided according to the principles enunciated in CIT v. Anwar Ali [1970] 76 ITR 696 (SC) without the aid of the Explanation inserted with effect from April 1, 1964 in section 271(1)(c) of the 1961 Act.
In reply, learned counsel for the Revenue contends that the imposition of penalty was clearly on the admission and at the invitation of the assessee and, therefore, there is no occasion to differ from the view taken by the Tribunal.
It may be mentioned at this stage only that for the assessment year 1964-65 (I.T. Reference No. 8 of 1980), there is no basis to differ from the Tribunals view, because no argument has been advanced on behalf of the assessee to assail the conclusion for that year. For the assessment year 1964-65, the original return also was filed on September 26, 1964, after insertion of the Explanation in section 271(1)(c) of the 1961 Act. The original assessment was made on March 25, 1969 and the reassessment was made on September 26, 1969. Accordingly, there is no escape from the conclusion that atleast the question of imposition of penalty for the assessment year 1964-65 is governed by section 271(1)(c) together with the Explanation thereto which was inserted with effect from April 1, 1964. Learned counsel for the assessee rightly made no attempt to challenge this position. The further consequence is that the I.T. Reference No. 38 of 1986 also in so far as it relates to the assessment year 1964-65 has to be answered in favour of the Revenue and against the assessee for the same reason.
We may first dispose of the assessees contention regarding the applicability of clause (f) instead of clause (g) of sub-section (2) of section 297 of the Income-tax Act, 1961. The relevant part of section 297 is as under :
"297. (1) The Indian Income-tax Act, 1922, (11 of 1922), is hereby repealed.
(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act), - ....
(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed;
(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day, of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act;"
A plain reading of the two clauses (f) and (g) shows that applicability of the 1922 Act according to clause (f) and of the 1961 Act according to clause (g) depends on the fact of completion of the assessment either prior to April 1, 1962, or subsequent to it. In other words, imposition of penalty is governed by the 1922 Act according to clause (f) if the assessment is completed before April 1, 1962, and by the 1961 Act if the assessment, though for the year ending on March 31, 1962, or any earlier year, is completed on or after April 1, 1962. The contention of learned counsel for the assessee is that the word "assessment" in these two clauses must be construed as the original assessment and not the final assessment or the reassessment for any year. On this basis, he argues that for the assessment years 1955-56 to 1959-60, the original assessments were completed prior to April 1, 1962, and, therefore, according to clause (f), the penalty proceedings must be governed by the 1922 Act notwithstanding the fact that the reassessments for all these years were completed on September 26, 1969, as a result of reopening of the assessments.
We are unable to accept this contention of learned counsel for the assessee for the obvious reason that it is contrary to the meaning of the word "assessment" as defined in section 2(8) of the Income-tax Act, 1961. Section 2(8) defines "assessment" to include reassessment. This definition has to be applied unless the context requires otherwise. We do not find anything otherwise in the context in which clauses (f) and (g) of sub-section (2) of section 297 have to be construed to indicate that the ordinary meaning of the word "assessment" given in the definition should not be applied. It is, therefore, obvious that where the "assessment", which also includes reassessment, was completed on or after April 1, 1962, for the year ending on March 31, 1962, or any earlier year, it is clause (g) which applies and the imposition of penalty is governed by the Income-tax Act, 1961, and not the 1922 Act. This contention of learned counsel for the assessee is, therefore, rejected.
The next contention of learned counsel for the assessee is that it is the date of filing the original return in which there has been concealment which determines the law applicable and since the original return was filed for the assessment years 1955-56 to 1961-62 prior to the coming into force of the 1961 Act on April 1, 1962, the provisions of the 1961 Act, cannot be applied. This argument also has to be rejected apart from other reasons, on the above ground based on section 297(2)(g) of the 1961 Act which we have already considered. That apart, the argument runs counter to the Supreme Court decision in lain Brothers v. Union of India [1970] 77 ITR 107 which has been reiterated in Maya Rani Punj v. CIT [1986] 157 ITR 330 (SC).
In Jain Brothers case [1970] 77 ITR 107 (SC), while dealing with the question of the validity of section 297(2)(g) of the Income-tax Act, 1961, the Supreme Court pointed out clearly that for imposition of penalty, it is not the assessment year or the date of filing of the return which is important but it is the satisfaction of the income-tax authorities that a default has been committed by the assessee, which would attract the provisions relating to penalty. It was indicated that the crucial date, therefore, for purposes of penalty is the date of completion of assessment when satisfaction of the income-tax authorities is reached that a case for imposition of penalty arises. The same view was reiterated with reference to Jain Brothers case [1970] 77 ITR 107 (SC) in Maya Rani Punj v. CIT [1986] 157 ITR 330 (SC) and it was held that "the crucial date, therefore, for purposes of penalty is the date of completion of assessment and the satisfaction of the authority that proceeding for levy of penalty be initiated". The matter has been placed beyond any possible doubt in Maya Rani Punjs case [1986] 157 ITR 330 (SC) by stating one of the conclusions as follows (at p. 337) :
"On the ratio of Jain Brothers case [1970] 77 ITR 107 (SC), the following conclusions are reached :
(a) Though the default occurred in September, 1961, the date relevant for the purpose of initiating proceedings for imposition of penalty is when, following the assessment made, the Income-tax Officer decided to initiate penalty proceedings."
The assessee was required to file the return in Maya Ranis case [1986] 157 ITR 330 (SC) by September, 1961, and, therefore, the default occurred then, but for the purpose of imposition of penalty it was pointed out that the crucial date was that "when, following the assessment made, the Income-tax Officer decided to initiate penalty proceedings".
Applying the settled test indicated by these decisions of the Supreme Court, the crucial date for imposition of penalty in respect of all these assessment years 1955-56 to 1961-62 and 1964-65 is really September 26, 1969, when, as a result of re-assessment, concealment of income was found and it was decided to initiate penalty proceedings. It has not been doubted even by learned counsel for the assessee that on this conclusion, the penalty proceedings for all these years are to be governed only by the provisions of the Income-tax Act, 1961, and consequently by section 271(1)(c) together with the Explanation inserted therein with effect from April 1, 1964.
In our opinion, these decisions of the Supreme Court are alone sufficient to repel the several arguments advanced on behalf of the assessee which are based essentially on the dates of filing the original returns and not completion of the assessments as a result of reassessments made on September 26, 1969.
As a result of this conclusion, the division made by learned counsel for the assessee of these references in three categories is inconsequential because the division is based only on the date of original returns or original assessments and not the date of reassessments which alone is the crucial date. Completion of assessment by reassessment is the same, namely, September 26.1969, for all these years.
We are of the opinion that it is unnecessary to refer and consider at any length the several decisions cited by learned counsel for the assessee in view of the clear authority of the Supreme Court on the point. We may observe that no case was cited by learned counsel for the assessee in which the above Supreme Court decisions have been construed differently. This is obviously for the reason that the clear enunciation of the principle in the above cases admits of no ambiguity and in the face of these decisions, there is no reasonable basis to hold that the crucial date for the purpose of imposition of penalty can be any date prior to the date "when following the assessment made, the Income-tax Officer decided to initiate penalty proceedings". The decision to initiate penalty proceedings is reached only when the assessment/reassessment showing concealment of income is made even though it is with reference to the return filed earlier by the assessee.
We may, however, refer to a Full Bench decision of the Madras High Court in R. Kuppuswamy Chetty v. CIT [1982] 135 ITR 235, where following the Supreme Court decision in lain Brothers case [1970] 77 ITR 107, the same conclusion was reached on similar facts. The Patna High Court in CIT v. Parmanand Advani [1979] 119 ITR 464 and the Orissa High Court in CIT v. K. C. Behera [1976] 103 ITR 479, also take the same view. Learned counsel for the assessee relied on Hajee K. Assainar v. CIT [1971] 81 ITR 423 (Ker). In our opinion, this decision has to be read along with the Supreme Court decision in lain Brothers case [1970] 77 ITR 107 and so read, the facts thereof indicate that the Kerala decision does not take a contrary view. In the Kerala case [1971] 81 ITR 423 the reassessment was completed prior to April 1, 1964, revealing concealment and in this situation it was held that the Explanation inserted in section 271(1)(c) with effect from April 1, 1964, after completion of the reassessment proceedings giving rise to the penalty proceedings, did not apply.
On the above conclusion reached by us, nothing significant remains for consideration. The argument of learned counsel for the assessee based on Anwar Alis case [1970] 76 ITR 696 is also of no practical significance in the facts of the present case. In Anwar Alis case [1970] 76 ITR 696, 701(SC), it was held as follows :
"It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars."
In other words, according to Anwar Alis case [1970] 76 ITR 696 (SC), where the Explanation to section 271(1)(c) does not apply, the mere addition to the income in the assessment proceedings is not conclusive for imposition of penalty and there must be some further material together with which the circumstances lead to the conclusion that the disputed amount represented income which had been consciously concealed, etc. Even if this test were to be applied in the present case, the conclusion cannot be different. The assessee voluntarily admitted, on initiation of reassessment proceedings, that the income initially not shown and claimed to be hundi loans was in fact the assessees income. The entire conduct of the assessee is to that effect and the assessee insisted that the Department should act on that basis not only for the computation of income but also for imposition of penalty at the minimum rate of 20 %. It is difficult to visualise what further material was required or contemplated in such a situation for acting on the request made by the assessee even for imposition of penalty. Admittedly, the penalty imposed is the very amount, i.e., the minimum penalty which the assessee had solicited. The assessee, apart from making such specific request, had made corresponding entries also in the account books by debiting the amount of hundi loans and crediting that amount in the names of all the partners by distributing the same between them in their profit-sharing ratio. Even if the Explanation to section 271(1)(c) is not relied on and Anwar Alis case [1970] 76 ITR 696 (SC) is applied, the conclusion cannot be different from the one reached by the Tribunal. No further question remains for consideration in these references.
Consequently, all these references are answered in the affirmative, against the assessee and in favour of the Revenue by holding that the Tribunals view on all the questions referred is justified. No costs.