Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalties levied under s. 271(1)(c) of the IT Act for the asst. yrs. 1972-73 to 1975-76 ?

High Court Of Madras

CIT vs. Dr. A. Mohd. Abdul Khadir

Sections 271(1)(c)

Asst. Year 1972-73, 1973-74, 1974-75

R. Jayasimha Babu & Mrs. A. Subbulakshmy, JJ.

Tax Case Nos. 934 to 937 of 1986

19th August, 1998

Counsel Appeared

C.V. Rajan, for the Revenue : None, for the Assessee


R. Jayasimha Babu, J. :

The assessee is a doctor, who runs a nursing home at Nagercoil. There was a search in his premises on 23rd Feb., 1977. His accountant gave a sworn statement that the doctor was not accounting for 50 to 70 per cent of his receipts and that there was large scale concealment. Thereafter, the assessee gave a petition to the CIT on 5th May, 1977, seeking settlement of his tax liability for the years 1972-73 to 1976-77. In that petition, he stated that in the light of the statement given by his accountant, Abu Backer, in the return of income to be filed by him for the asst. yr. 1977-78, he would take note of that statement, and that so far as the years 1972-73 to 1976-77 are concerned, the basis for computing his income for those years would be the accretion to his wealth, that wealth being in the form of the nursing home, which had been built during that period. The assessee stated that the accretion to his wealth in the years ended 31st March, 1972, to 31st March, 1975, was about Rs. 2,92,000 and that the income already assessed for that period was Rs. 1,00,679, the excess being Rs. 1,91,321. He requested that amount to be spread over and assessed in the asst. yrs. 1972-73 to 1976-77 and, as far as 1977-78 is concerned, in the absence of accounts, the excess of investments over available funds amounting to Rs. 88,600 would be offered as his income assessable in that year. He also mentioned in that petition that there was no incriminating document found during the search for the earlier years. He concluded by stating that he should be saved from penalty and prosecution, as he had filed the settlement petition in a spirit of co-operation.

The CIT, by his order dt. 23rd May, 1977, directed the assessee to file his returns of income under s. 147(a) of the IT Act for the years 1972-73 to 1974-75. He also added the amount, now offered to the income already assessed in respect of each of those years, for the years 1976-77 and 1977-78, for which returns, apparently, had not been filed at that time, the income offered was assessed. After giving that instruction, the CIT also directed that penalty proceedings under s. 271(1)(c) of the Act be initiated against the assessee for the years 1972-73 to 1975-76.

The assessment proceedings were completed in the manner indicated by the CIT, and, thereafter, the penalty proceedings were initiated. The AO levied penalty in a sum equal to the amount added to the income of the assessee for those years on the ground that, that amount of income had been concealed by the assessee, the assessee, having admitted that income only after search had taken place, and after his accountant had given a statement, which clearly showed that the assessee had been consistently suppressing his income and concealing the same by not truly recording all the receipts.

The CIT, however, set aside the penalty so imposed. The Tribunal has sustained the order of the CIT. Being aggrieved by that order of the Tribunal, the Revenue is now before us seeking answers to the following questions :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in cancelling the penalties levied under s. 271(1)(c) of the IT Act for the asst. yrs. 1972-73 to 1975-76 ?

Whether, having regard to the quantification of income on the basis of accretion to wealth computed on the basis of the seized material and other incriminating evidence, the Tribunal is justified in holding that revised returns filed by the assessee cannot be regarded as sufficient evidence of admission of concealment of income ?

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the materials seized and the, statement given have to be disregarded in considering whether the penalties imposed were justifiable ?

Whether, having regard to the filing of the revised return which is admission of the correct assessable income, the Tribunal is justified in holding that the penalty if held to be leviable, would be only that calculated in accordance with the law as it stood on the date when the penalty was imposed, viz., taking the tax avoided as the measure of penalty as per the law which stood at the time of filing the original return ?

Whether, in any event, the decision of the Tribunal cancelling the penalties under s. 271(1)(c) is not unreasonable as being based on irrelevant consideration ignoring material and relevant facts and for that reason unsustainable in law ?”

5. The Tribunal has held that the AO had levied the penalty solely on the basis that the filing of the revised returns by the assessee amounted to admission of concealment and that the material gathered at the search had not been the basis for the order levying the penalty. The fact that a search had in fact taken place and that statements attributed to the accountant had also been given was never in dispute. The Tribunal held that it was the bargain between the assessee and the CIT that if the assessee were to file the revised returns, he would be exonerated from penalty. No such bargain, however, is evident from the record. The CIT, even while directing the filing of the returns under s. 147(a) of the IT Act, had directed that penalty proceedings be initiated against the assessee.

6. Learned counsel for the Revenue submitted that the view of the Tribunal is wholly erroneous that it has ignored the material available on record and has reached a conclusion which would only encourage the assessees who deliberately conceal their income to escape consequences of their illegal actions. We find substance in the submission for the Revenue.

7. There can be no doubt whatsoever on the facts admitted by the assessee himself that the assessee had concealed his income for these assessment years. It was his own case before the CIT that the assessee had put up a valuable construction out of his own monies and that he had failed to report his true income for those years. He had himself estimated the amount of the income, which he had concealed, and had offered the amount so concealed for taxation. It was his hope that by that act of his, the CIT would be persuaded to exonerate him from the levy of penalty. The admission so made by the assessee can leave no manner of doubt that the assessee had in fact derived a larger income than the one he had reported in these assessment years, that he was aware of the fact that he did have a much higher income in those years, and that he had deliberately failed to report that income, the actual income reported being very much less than the income realised. The concealment was thus clear and patent. The filing of the revised returns by the assessee was after he had filed the petition before the CIT, which petition itself came to be filed after the search in his premises, and the statement given by his accountant regarding the concealment of income by the assessee. The mere filing of the revised returns in these circumstances cannot have the effect of exonerating the assessee from the liability for penalties, as the revised return was filed only on the basis that he had concealed his income during the earlier years. The fact that there was a search and that his accountant had given a statement were matters of record and were matters which had been admitted by the assessee himself when he gave a petition to the CIT.

8. The Tribunal has by an erroneous approach sought to make a virtue out of a vice. The concealment had been admitted. The Tribunal, however, has regarded filing of the revised statement as being unconnected with the admission of concealment in the petition, which itself referred to the search and the statement of his accountant, and which statement was accepted by the assessee as reflecting the correct state of affairs. The assessee had stated in the petition that income to the tune of Rs. 2,50,000 had not been shown in his returns of income, though that amount ought to have been shown. The filing of the revised returns was not a purely voluntary act unconnected with the search or unconnected with the statements given by his accountant. The Tribunal, therefore, was in error

in holding that the assessee was not liable to be penalised for concealment of his income during these assessment years.

9. The Tribunal has further held that if the assessee is to be regarded as having concealed his income, the law to be applied is the law as it stood at the time of filing of the revised return. That opinion of the Tribunal is wholly erroneous. It has ignored the law laid by the Supreme Court in the case of CIT vs. Onkar Saran & Sons (1992) 103 CTR (SC) 293 : (1992) 195 ITR 1 (SC). In that case, it was the stand of the Revenue that the law prevailing as on the date of the filing of the revised return was relevant. The Supreme Court negatived that plea and held that it is the law which prevailed on the date of filing of the original return that is to be applied. While so holding, the Court did envisage the situation like the present where the application of the law laid down by the Supreme Court turns out to be to the advantage of the Revenue. Between 1st April, 1968, and 31st March, 1976, the relevant provision governing penalty under s. 271(1)(c) was that the amount of penalty was to be equal to the amount of the income concealed, while the law before 1968 and after 1976 was that penalty is to be calculated on the basis of the amount of tax payable on the amount concealed. The assessment years here are 1972-73, 1973-74 and 1974-

75. The penalty imposable during these years was to be equal to the amount of the income concealed, and it is that law which is required to be applied in this case.

It is unfortunate that the assessee, though served with notice on these tax cases, twelve plus which cases have been pending in this Court for almost twelve years, has failed to appear. We have, therefore, not had the benefit of hearing any argument on behalf of the assessee.

Our answer to the questions referred to us are, therefore, in favour of the Revenue, and against the assessee. No costs.

[Citation : 260 ITR 650]

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