Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalty levied under s. 271(1)(c) of the IT Act, 1961 ?

High Court Of Andhra Pradesh

CIT vs. Md. Yakub By L/R Smt. Shaikkamarunissa Begum

Section 271(1)(c)

Asst. Year 1971-72, 1972-73, 1973-74

G. Ramanujulu Naidu & Y.V. Anjaneyulu, JJ.

R.C. No. 143 of 1985

3rd March, 1985

Counsel Appeared

M. Suryanarayana Murthy, for the Revenue : M.J. Swamy, for the Assessee


This reference relates to the income-tax asst. yrs. 1971-72, 1972-73 and 1973-74. The question referred for consideration of this Court is as under: ” Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalty levied under s. 271(1)(c) of the IT Act, 1961 ? “

2. The assessee was a dealer in iron and steel scrap. It is stated that he had voluntarily made an application for settlement of his tax liability in view of certain assets acquired by him and also by his wife. The ITO found that, during the asst. yrs. 1971-72 to 1974-75, the total value of assets acquired by the assessee and his wife was Rs.1,90,436. Possibly, the officer might have expressed the view that he would subject the above sum of Rs. 1,90,436 to tax and that induced the assessee to go for purchasing peace by settling matters. The assessee stated that most of the assets acquired by him and his wife were recorded in his books. Only a portion of the assets was not so accounted. The portion of unaccounted assets was quantified at Rs. 1,07,535 and they were spread over a period of twelve years during which the assessee was carrying on the business. The matter was discussed before the CIT on May 24, 1975, and the minutes of the discussion were drawn up on that day. According to the minutes, unaccounted assets were ascertained at Rs. 1,74,698 during the previous years relevant to the asst. yrs. 1971-72 to 1974-75 and deducting the income declared in the returns for these four years, the balance of income amounting to Rs. 1,32,753 was directed to be spread over the four assessment years, viz., 1971-72 to 1974-75. The assessee’s request to spread over the same for 12 years was apparently rejected. The assessee’s computation of the unaccounted assets was only Rs. 1,07,000 and the same was similarly rejected. In the minutes drawn up, there was a mention that penalty would be levied at 40 per cent of the concealed income for the asst. yrs. 1971-72 to 1974-75. The assessee addressed a letter on May 31, 1975, to the CIT setting out various particulars of assets acquired by him and in the name of his wife and eventually stated that he would accept the terms of settlement and requested the CIT to finalise the settlement proceedings and that he would abide by the terms of settlement. This letter makes curious reading. If the assessee agreed for the settlement dated May 24, 1975, to which the assessee was a party, we do not see any necessity for this letter dated May 31, 1975, wherein the assessee sets out various other particulars and finally concedes that the settlement may be given effect to. Either the exercise is a futile exercise or the assessee had meant to convey something which he did not convey in the letter. Eventually, penalties were levied for the asst. yrs. 1971-72, 1972-73 and 1973-74. The amounts of penalties were Rs. 15,844, Rs. 15,644 and Rs. 16,041, respectively. The assessee questioned the tenability of the penalties levied. The matter came up before the Tribunal. The Tribunal held that a substantial moiety of the sum of Rs. 1,74,698, agreed for settlement, was, in fact, recorded in the books of the assessee as assets acquired. It was incomprehensible that the assessee should have accepted the settlement in respect of items duly recorded in the books of account. The Tribunal had taken the view that there was nothing to show that the assessee had agreed to the terms of settlement, more particularly, levy of penalty of 40 per cent of the alleged concealed income, and in that view, cancelled the penalties levied. In cancelling the penalties levied, the Tribunal referred to the general position in law that unless the Revenue establishes concealment of income, it cannot levy penalty. A miscellaneous petition was filed by the Revenue which came up before another Bench of the Tribunal, wherein it was pointed out that the earlier Bench made a mistake in thinking that the letter accepting the terms of settlement was addressed on March 31, 1975, whereas it was actually addressed on May 31, 1975. The Revenue represented that the earlier Bench was under a misapprehension that the settlement could not have been accepted on May 31, 1975, when it had actually occurred on May 24, 1975. The Revenue explained to the Tribunal that the earlier Bench was largely miscarried in its view because of the discrepancy in the dates of the letter.

The succeeding Bench, once again, considered this matter and accepted that there was an error in the order of the earlier Bench in describing the letter as dated March 31, 1975, whereas it was actually dated May 31, 1975. At the same time, the second Bench referred to the findings of the earlier Bench that a substantial portion of the sum of Rs. 1,74,698, agreed to be assessed was shown to have been recorded in the books of account and the Tribunal was satisfied with reference to the correctness of that claim. Indeed, the Tribunal was a little surprised as to why in respect of the matters accounted, the assessee should have come forward for settlement. Taking an overall view of the matter, the Tribunal came to the conclusion that the decision of the earlier Bench did not require any modification and affirmed the cancellation of the penalties by the earlier Bench. In these circumstances, the CIT asked for a reference under s. 256(1) of the IT Act. 1961, and that is how the matter is laid before us.

We have heard learned standing counsel for the Revenue who had put forth the Department’s case effectively that this is a case where there was downright settlement agreed to between the assessee and the Department. The assessee could not be allowed to escape on extraneous grounds at this stage. According to him, the Tribunal was in error in going into the correctness or otherwise of the settlement as it did not arise before it. It is urged that all that could be done was to look into the terms of the settlement, and if the terms of the settlement affirm levy of penalties, the Tribunal had no other function but to confirm the levy of penalties.

Equally strenuously, Shri M. J. Swamy, appearing for the assessee, submitted that the whole exercise of the settlement was something that the assessee had never understood. It would, on the face of it, Shri Swamy says, appear inconceivable that in respect of assets recorded in the books of account, the assessee would accept a settlement. Learned counsel was at pains to submit that the entire matter was dealt with by the assessee’s income- tax practitioner who did not look into the matter with care and caution and dealt with the settlement proceedings casually without keeping in mind the interests of the assessee. It is stated that the mistake that occurred in such circumstances should not have the consequence of so serious a penalty against the assessee. Learned counsel also pointed out that the assessee has since died, and died in poverty, leaving his children without adequate means. We have no reason to disbelieve this statement made by learned counsel for the assessee.

As learned standing counsel for the Revenue put it, the Tribunal should have approached this issue only from the standpoint of settlement proceedings that had taken place. Justifiably or otherwise, the Tribunal went into the question and recorded a finding that it appeared that the substantial portion of the assets upon which tax was agreed to be paid were duly recorded in the assessee’s books. Settlement of that nature was quite unusual. This is a case where, if the matters are left to us, we would have probably confirmed the levy of penalties, without saying a further word in the matter, looking into the minutes of the discussion recorded. Two successive Benches of the Tribunal have concurrently gone into the question and have taken a particular view of the facts. We do not think that we would be justified in interfering with the view taken on facts by two Benches of the Tribunal.

In that view, we would answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.

[Citation : 174 ITR 29]

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